Archive for the ‘Eye on the Legislature’ Category

Tax Roundup, 4/23/15: House report rips Koskinen’s war on taxpayer service.

Thursday, April 23rd, 2015 by Joe Kristan

I’ll believe the IRS has a funding crisis when the IRS acts like it has a funding crisis. The House Ways and Means Committee yesterday issued a report ripping Commissioner Koskinen for deliberately cutting customer service to prioritize ACA implementation and to create pressure for a bigger budget. It’s the IRS version of the Washington Monument Strategy — slashing the most visible and popular services first.

This Koskinen isn't the IRS commissioner, but he'd probably do a better job than the one who is.

This Koskinen isn’t the IRS commissioner, but he’d probably do a better job than the one who is.

Christopher Bergin of Tax Analysts describes the report:

In 14 pages, the report blisters the IRS for treating taxpayers like dirt (my term, not theirs). It’s a shrewd counterpunch in the mouth. But remember, the commissioner picked this fight.

What’s in the 14 pages? A discussion of items that Mr. Koskinen chose to fund, and resources he neglected, at the expense of taxpayer service. Examples from the report include:

Diversion of user fee money to the general budget. The IRS has jacked up the fees to obtain rulings and non-automatic accounting changes to absurd levels. Rather than using those fees to provide services, the funds have been diverted to the general IRS budget.

Continuing to keep hundreds of full-time union operatives on the agency payroll. From the report.

“…the IRS reported that employees used 521,725 hours for union activity in fiscal year 2013, which accounted for an estimated $23.5 million in salary and benefits expenses. In fiscal year 2014, the IRS recorded 491,948 hours of union time, and another $23.5 million in salary and benefits expenses. In that same fiscal year, there were 36 IRS agents who devoted 50 percent or more of their time at work to union activities instead of performing official duties. For the first quarter of fiscal year 2015, the IRS reported 113,294 hours of union time.

The report says that at 15 minutes per call, these employee slots could have fielded 2.5 million taxpayer inquiries. But then the union would have to pay its own employees, and we can’t have that.

The report also notes that the IRS hasn’t exactly shown it would make good use of additional funds, citing its expensive internal system implementation failures. It also slams the IRS for ending the pilot private collection program, while failing to pursue the collections targeted under the pilot program. Of course, the Treasury Employee Union would rather have the work not done at all than to have it done by non-union help.

I agree with Christopher Bergin in attributing the mess to Mr. Koskinen:

Almost from the first day on the job, his reaction to congressional budget cuts has been to deflect responsibility elsewhere. His appearances before Congress have a “who do you think you are” edge to them. And this tax filing season, he upped the ante.

His new strategy went something like this: “You want to cut my budget, fine — then I’ll show you what it will cost.”

He began cutting back on taxpayer service and tax law enforcement,

Via Wikipedia

Via Wikipedia

claiming that the IRS lacks sufficient funds to do its job. Never mind that its annual budget is about $11 billion. Then Koskinen started telling his employees the country must get used to the IRS doing “less with less.” That language is code for “taxpayers are going to suffer and Congress will get the blame.”

He then doubled down on the rhetoric by labeling budget cuts a “tax cut for tax cheats.” Personally, I think that remark went too far. It resembles a temper tantrum — or worse.

And you know what? The commissioner of the Internal Revenue Service doesn’t get to throw a public temper tantrum. It’s simply not a part of the job description.

As long as the IRS can afford to keep a battalion of union operatives on its payroll, I’ll remain unconvinced that it really needs a bigger budget. I’m convinced that until Mr. Koskinen resigns, there is no hope for the agency.

Somewhat related: Russ Fox, Don’t Call Us Continues. “If anyone thinks the IRS’s budget will be increased for next year, they’re dreaming.”

The TaxProf has a roundup of coverage.

 

What’s “green” about green energy subsidies. An Indiana man pleads guilty to taking part in a conspiracy to scam the biofuel subsidy system. Prosecutors said the scam raked in over $100 million in refundable biodiesel production credits.

Of course, scams are bad, but the real scandal of the biofuel subsidies is what is legal.

 

William Perez, Tax Incentives for Alternative Energy Systems

 

Jason Dinesen, Tax Season Recap 2015: What a Strange Season, Part 2 (Trends I Noticed)

Peter Reilly, Detective’s Vacation And Sick Time Not Excluded From Taxable Income

Robert Wood, What To Do When IRS Agents Call On You. “This may sound paranoid, but the ramifications of getting flustered and running at the mouth can be extreme.”

TaxProf, The IRS Scandal, Day 714.

 

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Iowa rural broadband bill advances. O. Kay Henderson reports:

The Iowa House has passed a bill that would set up a state-run grant program to expand broadband access in Iowa, although no state money is committed and the program will only get going if the state gets federal tax dollars for it. The bill would set up a new, 10-year-long property tax exemption for companies that extend high-speed broadband service in “unserved or underserved areas” of the state.

Of course. How can you do anything without a tax bill? This item in the article strikes me:

Representative Josh Byrnes, a Republican from Osage, said the bill will hopefully address the “inconsistencies” in broadband speeds.

“I live in a part of Mitchell County where I actually get better connectivity to my barn than I get here at the state capitol,” Byrnes said.

Of course, the state capitol is in the most urban part of the state, which is also a rising tech corridor. If you can get better broadband in a Mitchell County barn, I have doubts about how serious the rural broadband problem really is.

 

TaxGrrrl, Accused Murderer Requests Police Escort To Cash Tax Refund. Jails apparently don’t cash refund checks.

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Tax Roundup, 4/8/15: It’s all due a week from today. The case for extensions.

Wednesday, April 8th, 2015 by Joe Kristan


4868 bigThe tax deadline is a week from today. An extension might be a great idea. 
It’s all real at your local tax pro’s office. Late nights, new information, complex returns, tight deadlines — all ingredients for something to go wrong. Is it really a good idea for you to want your tax filing to come out of that?

You tax return isn’t a trivial item. That’s why you are paying for it, or why you are spending hours slaving over it. The consequences of a seemingly minor mistake can be shockingly expensive. You own 10% of a Canadian partnership with some fishing buddies and you didn’t report it on the right form? That’s a $10,000 penalty for you!

That’s why it’s unwise to try to rush it through at the deadline, when you can easily get an extension and have it prepared by somebody who has had some sleep and nutrition.

Here are things I hear from people who don’t want to be extended:

This means I will get audited! No it doesn’t. I have seen zero evidence that extending a return increases the risk of audit. I have filed my own 1040 on extension every year since at least 1990, and have yet to be audited (*knocks wood*). A return with a mistake, on the other hand, definitely increases your risk of audit.

But this means they get an extra six months to look at my return! Yes it does. That doesn’t mean much. While I’m sure it’s happened, I have yet to see a case where a taxpayer had to pay an amount on audit on an extended return that wouldn’t have been caught had the return not been exended in 30 years of tax practice. I have seen cases where we were able to get refunds because we found an error on the return three years after the original due date, but before the extended filing date. It can work both ways.

I always file on time! Extended returns are still filed on time. It’s just a different time. This is usually more an assertion of the individual’s self-importance. It really means “you should drop everything else you are doing and finish my return.” It asserts ego over wisdom and practicality.

Now, the positive things about extending:

It gives you more time to make certain tax return elections. Automatic accounting method changes can be filed with extended returns. For many taxpayers, especially those with real estate investments on their 1040, an extension may give your preparer extra time to find new deductions that are “biblical” in scale under the new “repair” regulations. These aren’t available on amended returns.

It may give you more time to fund deductions. If you have a Keogh or SEP retirement plan, extending your 1040 gives you until October 15 to fund your 2014 deductible retirement plan contributions. Remember, though, that some deductions still have to be funded by April 15 even on extended returns, including IRA and HSA contributions.

20150326-3It may give you more time to find deductions. More than one taxpayer has found a charitable contribution receipt or tax payment that they missed when they sent their pre-extension information in.

Extensions may avoid an amended return. It’s not unknown for a taxpayer who is already filed a complex return to get a late K-1 or a 1099 from a new investment that they didn’t think would issue one. That means they have to file an amended return. The IRS does look at these. It’s always better to extend than amend. 

Extensions can turn a 5% per month non-filing penalty into a 1/2% per month late payment penalty. If you are caught short and can’t pay, it’s a lot cheaper to extend than to blow off the payment.

Finally, and most importantly, an extended return is likely to be more accurate. Workload compression is something tax preparers talk about with each other, if not so much in public. Tired people make more mistakes, and that includes preparers. If you really want to attract IRS attention, drop a digit from a six-figure 1099 or K-1 number.

If you extend, you still need to have 90% of your tax paid in when you file Form 4868 to avoid penalties. Many taxpayers extending 2014 returns will include the amount they would pay as their 2015 first-quarter estimate with the extension payment; that payment is due April 15 too, and it gives them a little cushion against surprises on the extended return.

This is another in our series of 2015 Filing Season Tips. Come back every day for a new one through April 15!

 

Russ Fox, Bozo Tax Tip #4: Procrastinate! “What happens if you wake up and it’s April 15, 2015, and you can’t file your tax? File an extension.”

Robert Wood, 9 Innocent Tax Return Mistakes That Trigger IRS Problems. Nine more good reasons to extend and get your return right.

TaxGrrrl, 13 Quirky Beer And Tax Facts On National Beer Day. They say that was yesterday, but any tax pro will tell you it’s really April 15.

Kay Bell, Chaffetz goes after tax-delinquent federal employees (again)

 

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The Des Moines Register reports: Bill advances to exempt bees from sales tax

 The [Iowa] House Ways and Means Committee passed a bill Tuesday that would exclude the sale of honey bees from state sales tax laws.

Honey bees have been the subject of much concern in recent years as their numbers have mysteriously declined. According to the U.S. Department of Agriculture, total losses to managed honey bee colonies was 23.2 percent nationwide during the 2013-2014 winter.

Those honey bee losses – which have been occurring for the last decade – have been linked to many things, including the use of pesticides, disease and loss of habitat.

As far as I know, this is the first time the decline in bees has been linked to sales taxes.

I’m sympathetic to this, in a way, in that I think business inputs should not be subject to sales tax. Still, this is the wrong way to go about it. While I love bees, there’s nothing about apiculture that makes it different from, say, raising earthworms, from a tax policy viewpoint. A group with good lobbyists gets the ball rolling, and everyone else gets left behind.

 

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TaxProf, Brown: The IRS Should Report on Tax Returns Filed by All 535 Members of Congress. I have a better idea: The President, every member of Congress, every cabinet member, and the IRS Commissioner should all have to prepare their 1040s by hand on a live webcast with a running comment bar. The webcasts should be archived on the Library of Congress website, along with the completed tax returns. I think tax simplification would follow in a hurry.

 

Andrew Lundeen, The Estate Tax Provides Less than One Percent of Federal Revenue (Tax Policy Blog). The rich guy isn’t buying.

Howard Gleckman, One Solution to California’s Drought: Tax Water. Oh, so close. How about markets?

TaxProf, The IRS Scandal, Day 699

 

Career Corner. #BusySeasonProblems: Inflatable Sharks; Late-night Checklists; Unexpected Taxable Income (Caleb Newquist, Going Concern).

 

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Tax Roundup, 3/19/15: Iowa Alternative Maximum Tax advances to its doom. And: The Tax Foundation doesn’t want your 1040!

Thursday, March 19th, 2015 by Joe Kristan
If Iowa's income tax were a car, it would look like this.

If Iowa’s income tax were a car, it would look like this.

Iowa House Ways and Means advances Alternative Maximum Tax. The committee voted to send HSB 215 to the House Floor yesterday.  The bill would let taxpayers choose between the current Iowa income tax and a simpler version with a broader base, lower rates, and no deduction for federal taxes.

The ideas in the alternative bill are all good policy. But just adding this to the current awful income tax is like spray painting a car that’s half rusted-through. It’s extra work that does no good.

In the real world, taxpayers would compute both taxes and pay the lower one. This is the opposite of the current alternative minimum tax, where you pay the higher of the regular or alternative tax base. That’s why I call it an Alternative Maximum Tax.

If you want to simplify taxes, simplify the tax system; don’t just tack a simplification module on the existing code.

Really, though, this proposal is just for show, as they know Senator Gronstal will never let it move in the Iowa Senate. If it reinforces the idea that you can lower rates with a broader base and by taking out the deduction for federal taxes, it could even do some good. It might even get them thinking about the  Tax Update Quick and Dirty Iowa Tax Reform Plan.

 

Filing season tip: Please Don’t Mail Your Tax Returns to the Tax Foundation (Joseph Henchman, Tax Policy Blog):

Someone mailed us their tax returns and documents today. We quickly sent it back to that individual, as we neither process tax returns nor assist individuals with tax planning or preparation. Tax documents contain a lot of private information and everyone should be very careful about to whom they send this information.

We are here for taxpayers but we are unable to assist individuals with tax planning or preparation. Our staff includes scholars who study tax policy and data, not tax preparation professionals.  

Another inadvertent argument for e-filing: those returns are pretty sure to end up in the right place.

 

TPC logoRoberton Williams, Who’s Afraid of Income Taxes? New Interactive TPC Tools To Help You Understand the 1040. A cool new feature at TaxVox:

In bite-sized pieces, Who’s Afraid of the Form 1040? discusses the main tax form, explaining the different filing statuses, who counts as a dependent, and what income is taxed (and what income isn’t). How do deductions and credits cut your tax bill and how does the AMT boost it? And how does the income tax help you pay for college, health care, and retirement?

With tax trivia (we used to file our returns on the Ides of March) and facts (just 2.9 percent of taxpayers will owe AMT for 2014 but they’ll pay an average of $6,500), the new feature explains many aspects of the income tax. It won’t make it easier to file your taxes but it might make the process a bit more interesting.

We have also updated our Interactive 1040. Inaugurated last year, this web tool allows users to examine each individual line of the 1040 and Schedule A (itemized deductions). Pop-up boxes contain brief explanations and links to distributional tables and other TPC resources on each topic.

It might be a good way to help you understand why that refund you thought you had coming didn’t.

 

IMG_1322TaxGrrrl, It’s Not A Scam: IRS Is Really Sending Out Identity Verification Letters. Letters, people, not phone calls, not emails. They don’t call without sending a letter first.

Kay Bell, What should be on the IRS’ taxpayer service to-do list? I would start with not sending billions of dollars to ID-fraud scammers.

Me, IRS issues Applicable Federal Rates (AFR) for April 2015.

TaxProf, The IRS Scandal, Day 679.

 

David Brunori, A Very Good Tax Reform Idea in Louisiana (Tax Analysts Blog).

Louisiana Gov. Bobby Jindal (R) has a tax plan that should be creating buzz all around the country. He wants to convert some of the state’s individual and business tax credits from refundable to nonrefundable. Let’s be clear: Refundable tax credits are government transfers. They are welfare. They merely use the tax code as a vehicle to take money from some people and give it to others. And apart from the earned income tax credit, no refundable credits represent sound policy.

Given that over 25% of the EITC ends up in the wrong hands, I’m not sold on that one either. David is absolutely correct on the unwisdom of refundable credits, and transferable credits are just as bad.

 

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Tony Nitti, AICPA Sends 34 Tax Proposals To Congress

Annette Nellen posts on Need for greater tax literacy and regulation of preparers. Tax literacy, sure. Preparer regulation? Not so much. Massive simplification? Definitely.

Joseph Thorndike, Mike Lee’s Tax Plan Was Promising. Until It Wasn’t. (Tax Analysts Blog). “Are the reformicons done for?”

Matt Gardner, GOP Budget Proposal Once Again Punts Tough Questions (Tax Justice Blog)

Career Corner. Busy Season Zen: The Swish Montage (Caleb Newquist, Going Concern). Ommmm.

 

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Tax Roundup, 3/12/2015: Tails and legs: Tax Court says that by any name, refundable tax credits are income.

Thursday, March 12th, 2015 by Joe Kristan

20120801-2Yesterday the Tax Court ruled that refundable business incentive tax credits issued by New York generate taxable income. Judge Holmes made the decision entertaining. Well, except maybe for the taxpayer who lost.

Credits works differently from deductions. A $100 tax credit reduces your tax by $100, while a $100 deduction reduces the tax of a taxpayer in the 25% bracket by only $25. When a credit is “refundable,” if it exceeds the tax you would otherwise owe, the government sends you a check for the excess. The federal Earned Income Tax Credit is the most common example. Iowa has several such credits, including its EITC and its research credit for business.

New York also uses refundable credits. Judge Holmes sets the stage (all emphasis is mine):

New York State uses extremely targeted tax credits as an incentive for extremely targeted economic development in extremely targeted locations. Those who receive these credits may be extremely benefited — even if they do not owe any state income tax, New York calls the credits overpayments of income tax and makes them refundable. David and Tami Maines say that none of the credits should be taxable because New York labels them “overpayments” of past state income tax, and they never claimed prior deductions for state income tax. The Commissioner disagrees and argues that these refundable credits are, in substance even if not in name, cash subsidies to private enterprise — and just another form of taxable income.

The taxpayer said that because New York called the refundable amount of the credits “overpayments,” they were like withholding:

So the key question in this case becomes whether a federal court applying federal law has to go along with New York’s definition.

The Maineses understand the importance of this question, and they argue that if New York State tax law calls these payments “overpayments” we have no power to call them something different. They point to cases like Aquilino v. United States, 363 U.S. 509, 513 (1960) (quoting United States v. Bess, 357 U.S. 51, 55 (1958)), where the Supreme Court held that Federal tax law “‘creates no property rights but merely attaches consequences, federally defined, to rights created under state law.”‘

Judge Holmes is unconvinced (my emphasis):

The Commissioner does not challenge these cases. And he also agrees that New York law labels the credits as “income tax credits,” and excesses or surpluses as “overpayments” of state income tax for state-tax purposes. But is a state’s legal label for a state-created right binding on the federal government? Here begins the disagreement. The Maineses contend that New York’s tax-law label of these excess EZ Credits as overpayments is a legal interest that binds the Commissioner and us when we analyze their taxability Lincolnunder federal law. The Commissioner warns that if this were true, a state could undermine federal tax law simply by including certain descriptive language in its statute. To use Lincoln’s famous example, if New York called a tail a leg, we’d have to conclude that a dog has five legs in New York as a matter of federal law. See George W. Julian, “Lincoln and the Proclamation of Emancipation,” in Reminiscences of Abraham Lincoln by Distinguished Men of His Time (Allen Thorndike Rice, ed., Harper & Bros. Publishers 1909), 227, 242 (1885), available at https://archive.org/details/cu31924012928937.

We have to side with the Commissioner (and Lincoln) on this one: “Calling the tail a leg would not make it a leg.” Id. Our precedents establish that a particular label given to a legal relationship or transaction under state law is not necessarily controlling for federal tax purposes.

The taxpayer advanced a more novel argument:

The Maineses also contend that their credits are excludable from their taxable income as welfare. The Commissioner has long held that certain payments from social-benefit programs that promote the general welfare are not includible in gross income.

I’ve called such credits “Corporate welfare” at least once or twice myself. But calling a tail a leg, or corporate welfare, doesn’t make it welfare for tax exclusion purposes:

Critics of programs like New York’s might call them “corporate welfare.” But that’s just a metaphor — the credits that New York gave to the Maineses were not conditioned on their showing need, which means they do not qualify for exclusion from taxable income under the general-welfare exception. See also, e.g., Rev. Rul. 2005-46 (holding that state grants for expenses incurred by businesses that agree to operate in disaster areas are not excludable under the general-welfare exclusion).

We therefore hold that portions of the excess EZ Investment and Wage Credits that do not just reduce state-tax liability but are actually refundable are taxable income.

New York FlagOne interesting thing about the New York credits at issue is that they can either be refunded, at the cost of a loss of some of the credits, or carried forward in full at the taxpayers option. In a footnote, Judge Holmes says that while the taxpayer has the option of whether to claim the refund, there is no option on when it affects taxable income:

Recall that whether or not the Maineses choose to receive the refundable portion of the credit, they are in constructive receipt of it and therefore must include it in their gross income.

This is a full-dress “reported” Tax Court decision, which means it is meant to guide future litigation in this area. A footnote in the decision says there are 10 other related New York cases pending. It has obvious implications for the Iowa research credit and historical building credits, which are refundable. There are many other such refundable tax credits in other states.  I never doubted that such credits were taxable “accessions to wealth,” and the Tax Court feels the same way.

Cite: Maines, 144 T.C. No. 8.

 

The Des Moines Register reports Lawmaker proposes end to Iowa taxes on pensions:

Sen. Roby Smith, a Republican, has introduced Senate File 277, which would phase out taxes on retirement income over five years, starting in fiscal year 2017. The measure is co-sponsored by 23 Republican senators. He said that during his re-election campaign last fall, one of the common complaints he heard from older Iowa voters was the need to pay taxes on retirement income.

Let me register my complaint about having to pay taxes on income while I’m working. Can I get an exemption?

IMG_1284This sort of carve-out is a classic example of how the tax law goes bad. High rates make people motivated to carve out breaks for themselves. It works especially well if those seeking the breaks are organized and have time to spare to press their case, like retired folks.

But giving tax breaks just by virtue of age or working status is the wrong way to go. If a retired person is poor, reduce his taxes to take his poverty into account (the tax law already does so in a number of ways). But if he is wealthy and retired, why should he get a better deal than a less-wealthy person who still trudges to work every day? In terms of wealth, the elderly are better off than the not-so-elderly, as a group.

It would be much better for the legislature to cut the rates for everyone, get rid of special carve outs for the politically influential, and help the poor, of whatever age, with a reasonable exemption for low-income taxpayers.

 

Jason Dinesen asks Why Do Unethical Clients Bother Working With Tax and Accounting Pros?:

I asked one of my peers about this and he said it’s because that type of person likes to feel important. They “have an accountant” and they can brag about it to their friends.

It’s an excellent question. My answer is that they feel they are buying excuses. If they get caught, they will immediately blame the accountant.

Robert Wood, Former NFL Player & 2 Others Get Jail & $35M Restitution For Tax Break Scheme:

The evidence at trial established that through NADN, the defendants promoted and sold a product called Tax Break 2000. Tax Break 2000 purported to be an online shopping website. The defendants falsely and fraudulently told customers that buying the product would allow them to claim legitimate income tax credits and deductions under the Americans with Disabilities Act (ADA) by modifying the website each customer was provided to make it accessible to the disabled.

If the stupidity of the tax scheme were a factor in sentencing, they’d have faced a firing squad.

 

TaxGrrrl, Taxes From A To Z (2015): Early Distributions

Cara Griffith, Will There Be an Increase in State Transfer Pricing Audits? (Tax Analysts Blog). “States have not, however, been particularly successful in challenging the arm’s-length pricing of intercompany transactions”

 

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Kay Bell, Senate tax writers want public suggestions for tax reform

Stephen Entin, Tax Indexing Turns 30 (Tax Policy Blog)

William Gale, Rubio-Lee Hints at Tax Reform’s Troubling Direction (TaxVox).

 

TaxProf, The IRS Scandal, Day 672. The state continues its efforts to criminalize opposition.

Tax Analysts ($link), IRS Stops Providing Exemption Letters to Press. Given the stellar performance of the IRS Exempt Organizations division, what’s not to trust?

 

Adrienne Gonzalez wonders What Are the Accounting Profession’s Darkest Secrets? (Going Concern). Other than the ritual human sacrifice?

 

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Tax Roundup, 3/5/15: More tax credits! Also: ACA on the dock again, and good tax news for gamblers.

Thursday, March 5th, 2015 by Joe Kristan

Accounting Today visitorsclick here for the frosty Iowa tax climate post, or go here for a longer treatment.

 

David Brunori has a wise post about Michigan’s disastrous tax credits: Tax Incentives Cause Trouble For More Reasons Than You Might Think (Tax Analysts Blog). “The history of job creation tax credits in Michigan is a story of corporate welfarism.”

20120906-1That’s just as true here in Iowa, where every legislative session seems to bring a new tax credit, to go with the dozens already on the books. From today’s Des Moines Register: New chemical production tax credit bill advances.

For example, companies like Cargill that produce ethanol and other fuels from corn produce corn oil in the process. The tax credit is geared toward companies that take that oil and other byproducts to create higher-value chemicals. Those higher-value chemicals can then be used to produce plastics, paints or pharmaceuticals.

The legislation would provide a credit of 5 cents for every pound of chemical a company produces. It would not apply to chemicals that are used in the production of food, animal feed or fuel.

These byproducts are already used somewhere. That means the credit would do one or more of the following:

– Subsidize companies that are already making the chemicals.

– Divert the byproducts from their current buyers — producers of food and animal feed, for example — to those who would receive subsidies, forcing the current buyers to find more expensive substitutes.

– Create subsidized competition for companies that already produce chemicals from other sources.

In short, they would take money from existing businesses and their customers and give it to someone with a better lobbyist.

The bill is HSB 98. The bill also contains increases in “seed capital” and “angel investor” tax credits, expanding the Iowa’s dubious role as an investment banker that doesn’t care whether it makes money.

 

supreme courtYesterday was the current Obamacare challenge’s day in the Supreme Court. It’s pretty clear that the four liberal justices will vote to uphold the IRS, and the subsidies to taxpayers outside of state exchanges. Justices Scalia, Alito and Thomas will vote no. The decision is in the hands of Justices Kennedy and Roberts, who aren’t giving much away.

I’ll defer to others for coverage of yesterday’s hearing, including:

Megan McArdle, Life or Death. “This morning, someone on Twitter explained that this case really is different because if the Supreme Court rules the wrong way, thousands of people will die. I find this explanation wholly unconvincing, for two reasons.”

Jonathan Adler, Oklahoma’s response to Justice Kennedy and Things we learned at today’s oral argument in King v. Burwell.

 

Russ Fox, IRS Proposes Session Method for Slot Machine Play and a Revision to the Regulations on Gambling Information Returns:

There’s a lot to like in IRS Notice 2015-21, the IRS’s proposal for a “Safe Harbor Method for Determining a Wagering Gain or Loss from Slot Machine Play.” The proposal is for a daily session for slot machine play where there are electronic records. Let’s say an individual plays slot machines at Bellagio from 10:00am – 12:00pm and from 3:300pm – 5:00pm. That can all be combined into one session per this revenue procedure (if it is finalized).

This is important for gamblers because gambling winnings are included in Adjusted Gross Income, but losses are itemized deductions. If you treat each play as a separate taxable event, then you inflate both the above-the-line winnings and the below-the-line deductions. Increasing AGI causes all sorts of bad things, including making Social Security Benefits taxable, and at higher levels causing a loss of itemized deductions and exemptions and triggering the Obamacare Net Investment Income Tax of 3.8%. Allowing winnings and losses to be netted over a day reduces this inequity.

 

IMG_1219Where red-light cameras take you. The Ferguson Kleptocracy (Alex Tabarrok, Marginal Revolution). When the role of law enforcement becomes picking the pockets of the citizenry, bad things happen.

 

 

Scott Drenkard offers a link rich state tax policy roundup: More Research against the Texas Margin Tax, New Kansas Pass-Through Carve Out Data, and Capital Gains Taxes in Washington (Tax Policy Blog). It includes this:

Barbara Shelly at the Kansas City Star has a review of the Kansas income tax exclusion for pass through entities that blew a hole in the budget. Kansas expected 191,000 people to take advantage of the exclusion, but 333,000 people ended up taking it, for a loss of $207 million in revenues. I testified today to the Ohio House Ways & Means Committee on a similar provision being considered by Gov. Kasich.

Imagine that.

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Kay Bell, Alabama’s GOP governor calls for – gasp! – new, higher taxes

Peter Reilly, Government Focusing On Codefendant Hansen As Kent Hovind Trial Commences. More coverage of the young-earth creationist tax case.

Robert Wood, Despite FATCA, U.S. Companies Stash $2.1 Trillion Abroad—Untaxed

TaxGrrrl, Taxes From A To Z (2015): B Is For Bona Fide Residence Test

 

William McBride, Rubio-Lee Plan Cuts Taxes on Business Investment to Grow the Economy by 15 Percent (Tax Policy Blog):

  1. It cuts the corporate and non-corporate (or pass-through) business tax rate to 25 percent.
  2. It eliminates the double-tax on equity financed corporate investment, by zeroing out capital gains and dividends taxes.
  3. It allows businesses to immediately write-off their investments, instead of requiring a multi-year depreciation.

Also:

Second, the growth in the economy would eventually boost tax revenue, relative to current law. We find after all adjustments (again, about 10 years) that federal tax revenue would be about $94 billion higher on an annual basis. This is our dynamic estimate. Our static estimate, i.e. assuming the economy does not change at all, shows a tax cut of $414 billion per year. We believe the dynamic estimate is much closer to reality.

For another (non-dynamic?) view, there’s Howard Gleckman, The Rubio-Lee Tax Reform Plan Raises Important Issues But Would Add Trillions to the Debt. (Tax Vox)

 

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Accounting Today, Senate Report Blames Tax Pros for Unfair Tax Code. I think that’s a little like criminals blaming their victims for their crimes. I agree with Tony Nitti: Senate Report Blames Tax Professionals For Inequities In The Tax Code; Is Completely Insane.

 

TaxProf, The IRS Scandal, Day 665.

Joseph Thorndike, Voters Are Confused About the Difference Between Tax Avoidance and Evasion – Because Politicians Blur the Line (Tax Analysts Blog)

 

News from the Profession. PwC Concludes Female Millennials Are Great For Vague, Pointless Research (Adrienne Gonzalez, Going Concern). “It’s the 3% that don’t care about work/life balance I’m worried about…”

 

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Tax Roundup, 2/25/15: Iowa gas tax boost goes to Governor. And: an appointment with Sauron.

Wednesday, February 25th, 2015 by Joe Kristan

IMG_1284Both houses of the Iowa General Assembly approved a 10-cent per gallon gas tax increase yesterday. The Des Moines Register reports:

The fuel tax increase has had strong support from a coalition representing farm groups, business organizations and local government officials. Iowa Farm Bureau members flooded the Capitol last week to lobby legislators to encourage a vote in favor of the gas tax increase. They contended better roads are crucial to the state’s economy and that gas taxes — 20 percent of which are paid by out-of-state motorists — offered the best solution.

The legislation was opposed by Iowans for Tax Relief and Americans for Prosperity, a conservative advocacy group, as well as truck stop operators and convenience store owners who worry retailers on Iowa’s borders will lose business to competitors in neighboring states. Opponents suggested lawmakers needed to better prioritize state spending, and proposed tapping revenues from the state’s general fund to pay for highway projects.

While I think gas taxes are a good way to pay for roads — they put the cost on the users — I am unconvinced that the state uses the funds wisely. By ramming the bill through committee by stacking it with yes votes, the legislature leadership made sure such concerns would not be addressed.

I expect the Governor to sign the bill. The legislature wouldn’t have gone through the trouble if they had any doubt. I have predicted that his approval of a gas tax increase means he won’t run for another term. But I also predicted the gas tax wouldn’t pass.

Somewhat related: Jim Maule, So Who Should Pay for Roads?

 

IMG_0543Why not exempt everyone? Tax Analysts reports ($link) that taxpayers who have filed returns based on incorrect ACA 1095-A forms will not have to pay any additional tax based on the corrected forms:

Tax return filers who purchased health insurance from federal marketplaces set up under the Affordable Care Act and who then filed tax returns based on erroneous information contained in Forms 1095-A will not need to file amended returns with the IRS to stay compliant, the Treasury Department said in a February 24 statement.

“The IRS will not pursue the collection of any additional taxes from these individuals based on updated information in the corrected [1095-A] forms,” the Treasury statement said.

It’s yet another example of the IRS making up rules for Obamacare when its flaws become too obvious. I’m not one to complain when the IRS fails to enforce a dumb tax, but does anybody think the IRS would be as understanding for, say, failing to amend based on a corrected K-1?

Related: Robert Wood, Wrong Obamacare Form Tax Filers Get Relief From IRS. “Unfortunately, the 750,000 people who were sent erroneous form but who haven’t yet filed their taxes are being told to wait until the corrected forms arrive in March.”

 

TaxGrrrl, IRS Testing Taxpayer Appointments At Some Taxpayer Assistance Centers. Why appointments?

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Tax season is saved! Majority of Taxpayers with Obamacare Premium Tax Credits Need to Pay Back Portion (Accounting Today). I’m sure that’s popular.

Howard Gleckman, So Far, Affordable Care Act Users Are Managing Tax Filing, Many Uninsured May Use New Enrollment Period (TaxVox)

Jason Dinesen, Is Iowa Filing Status Tied to Federal Filing Status When You’re Married?

Annette Nellen explains Bitcoin transaction reporting. If you use Bitcoins regularly, you’ll need a bigger tax return.

Kay Bell, New York city, state lawmakers seek pet adoption tax credit. Not every problem is a tax problem, folks.

Leslie Book, Taxpayer Rights: A Look Back to Congressional Testimony of Michael Saltzman and Nina Olson

Jack Townsend, Cono Namorato to Be DOJ Tax AAG.

 

Enjoying a short Des Moines winter commute.

Snow warning today!

 

Scott Drenkard, Utah Is Eyeing An E-Cigarette Tax, But Its Reasoning Is Faulty (Tax Policy Blog). States have a pretty sweet deal with the tobacco devil, getting a cut of tobacco revenues. They hate the idea of e-cigs cuttting into that.

 

David Brunori, Sorry Folks — Clothes Should Be Taxable (Tax Analysts Blog):

The sales tax should fall on all final personal consumption. Everything you buy, be it tangible personal property or services, should be subject to the tax. Such a broad base minimizes economic distortions, allows for overall lower rates, and makes both administration and compliance easier.

But it minimizes the opportunities for legislators to do favors for friends.

TaxProf, The IRS Scandal, Day 657

 

Caleb Newquist, Accountants vs. Lawyers: A Pointless Debate (Going Concern). “A lawyer and an accountant walk into a bar. Everyone else in the bar doesn’t care.”

 

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Tax Roundup, 2/24/15: Iowa gas tax boost vote may be today. And: are tax credit subsidies on the way out?

Tuesday, February 24th, 2015 by Joe Kristan

It looks like the gas tax increase will come to a vote today, reports the Des Moines Register:

Rep. Josh Byrnes, R-Osage, who chairs the Iowa House Transportation Committee, said Monday he expects a tight vote. He added that talks were continuing among House Republicans.

“I don’t think we’d bring it up for debate if we didn’t think we had the votes,” Byrnes said.

It sounds like a done deal. At least that’s what they want everyone to think.

 

20120906-1Iowa has just announced a big new set of tax breaks for an out-of-state company, in the name of  “economic development.” But are “targeted” tax subsidies on the way out? Ellen Harpel says they might be in Beyond tax credits: creating winning incentive packages (smartincentives.org):

 

Tax credits have become problematic for several reasons:

  • Tax credits are often presented as no-cost incentives. That is, tax credits are not taken (incentives “paid out”) until the company has met certain thresholds and has started paying the taxes against which the credit is taken. However, as this article in the Wall Street Journal points out, the fiscal costs are substantial. It is not clear to us that other taxes expected to be generated by incentivized projects either materialize or are sufficient to fill the budget gap.
  • One reason might be that tax credits are more important to existing businesses than firms new to a location, based on our review of major incentive deals, so an incentivized project may not generate as much new tax revenue as anticipated.
  • Once the tax credits have been granted, states do not know when businesses will choose to take the credit, wreaking havoc on state budgets, possibly for decades depending on the terms of the tax credit arrangement.
  • Some tax credits are refundable (paid back to the company if their tax liability is not high enough to take the credit) or transferable (sold to another taxpaying entity). Film tax breaks often fall into this category, lowering the taxes paid by other taxpayers that are not the direct target of the incentive.

Using tax credits in this manner is not sustainable. To the extent economic development organizations continue to use tax credits, caps and limits will become the norm.

As long as politicians can get media outlets to run headlines like “New $25 million plant will bring 120 jobs to Iowa,” tax credits remain “sustainable” for vote-buying politicians. If they really wanted to help everybody — not just chase smokestacks — they would enact something like The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

Related:

IF TRUTH IN ADVERTISING APPLIED TO ECONOMIC DEVELOPMENT AGENCIES

WSJ, Tax-Subsidy Programs Fuel Budget Deficits

 

If Iowa’s tax climate is so bad, why do businesses locate here? A hint may be found here: J.D. Tucille, Florida, the Freest State in the Country? “California, New York, and New Jersey always rank near the bottom of these lists as intrusive, red tape-bound hellholes.”

 

Via the John Locke Foundation

Via the John Locke Foundation

Iowa is #13.

The First in Freedom Index actually draws from a lot of the sources that have been cited here before, including the Fraser Institute’s Economic Freedom of North America as well as Mercatus Center’s Freedom in the 50 States, the Tax Foundation’s State Business Tax Climate Index, and measures put together by the Center for Education Reform, among others. To this, the North Carolina group adds its own weight and emphasis. 

Imagine how attractive Iowa could be without a bottom-10 tax climate.

 

Russ Fox, “Ripping Off Your Refunds” In the Miami Herald. “There is an excellent article in the Miami Herald on the identity theft tax fraud crisis. ”

TaxGrrrl, Tax Professionals Targeted In Latest Bogus IRS Email Scam. You can fool all of the people some of the time.

Robert Wood, Can IRS Seize First, Ask Questions Later? ‘Yes We Can’.

Kay Bell, NASCAR Hall of Fame and homeowner tax breaks collide. Another subsidized municipal boondoggle.

Peter Reilly, Estate Intended For Charity Depleted By Litigation And Income Tax. A sad story, and a cautionary tale for estate planning.

 

20121120-2Hank Stern, More Delays on HRAs:

For example, pre-ACA, small employers could fund “standalone” HRAs that allowed employees to pay for privately purchased health insurance (among other things). This encouraged employees to buy the plan best suited to their needs, and employers could control costs because they weren’t beholden to a group carrier’s annual rate in creases.

Sadly, those days are gone.

Everybody must be forced into the exchanges to participate in the ACA’s cross-generational subsidies.

 

William Perez, Problems with Form 1095-A

Jared Walczak, Will Mississippi Eliminate Its Antiquated Franchise Tax? (Tax Policy Blog). It’s a tax that can be a nasty surprise to a business entering that state.

 

Alan Cole ponders The President’s Revenue Problem (Tax Policy Blog):

It’s popular to claim that you’ll fund a big new government program through a tax on investors. The strong ideological priors of the political press tell us that investors are earning huge amounts of money, and that’s where the income is.

But the math tells us otherwise. Here’s what the tax bases for wage income and capital income actually look like in practice, from my recent report on sources of personal income.

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Tax Update regular readers already know that the rich can’t pick up the tab.

 

Jim PagelsNumber of American Corporations Declines for 17th Straight Year (Reason.com):

The report claims that the reduction in the number of incorporated firms is not so much due to inversions, mergers, or bankruptcy, but rather more firms classifying themselves as S Corporations, in which profits pass directly to owners and are taxed as individual income. Individual rates are typically lower than the U.S. corporate tax rate, currently the highest among members of the Organisation for Economic Co-operation and Development at 35 percent federal plus an additional 4.1 percent average rate levied by individual states.

This is why you can’t do a “corporate-only” tax reform.

 

Jeremy Scott, Does the United States Really Need a Tax Revolution? (Tax Analysts Blog): “Those who say that tax reform doesn’t go far enough and that the nation needs a revolutionary change are probably overstating the problem.”

Martin Sullivan, The Tax Reform Supermarket (Tax Analysts Blog). “Slowly but surely, members of Congress are coming to the painful realization that conventional, Reagan-style tax reform is going nowhere.”

 

Howard Gleckman, Better Ways to Link the Affordable Care Act with Tax Filing Season (TaxVox). “But since the ACA insurance is so closely linked to tax filing, it only makes sense to synch that sign-up period with tax season.”  I have a better idea: have health insurance purchases be totally unrelated to tax season, by getting rid of the whole misbegotten ACA.

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TaxProf, The IRS Scandal, Day 656, quoting the Washington Times:

The White House told Congress last week it refused to dig into its computers for emails that could shed light on what kinds of private taxpayer information the IRS shares with President Obama’s top aides, assuring Congress that the IRS will address the issue — eventually. The tax agency has already said it doesn’t have the capability to dig out the emails in question, but the White House’s chief counsel, W. Neil Eggleston, insisted in a letter last week to House Committee on Ways and Means Chairman Paul Ryan that the IRS would try again once it finishes with the tea party-targeting scandal.

Just like it couldn’t possibly find the 30,000 emails that TIGTA dug up from the back-up tapes.

 

News from the Profession. The PwC Partner Who (Sorta) Looks Like Matt Damon and Other Public Accounting Doppelgangers (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 2/20/15: Sometimes you just need a new voter edition. Also: time travel for a tax credit!

Friday, February 20th, 2015 by Joe Kristan

IMG_1291When the votes don’t go your way, replace the voters. The Iowa House Republican leadership seems all-in on the proposed 10-cent gas tax increase. WHOTV.com reports:

A bill that will raise Iowa’s gas tax by ten-cents per gallon, as soon as March 1, took a big step forward at the statehouse Thursday. That’s thanks in large part to a committee membership shuffle by Iowa House Speaker Kraig Paulsen.

Paulsen replaced Jake Highfill, who he says was a ‘no’ vote on raising the gas tax, with Brian Moore, who he says is a “yes” vote, on the committee. Paulsen also removed Zach Nunn from the committee for one day and put himself in Nunn’s place.

That enabled the bill to clear the committee by a 13-12 vote.  So it looks like the powers that be are determined to make the gas tax increase happen.

 

Time travel. Congress reenacted the expired Work Opportunity Credit in December, retroactively to the beginning of the year. The credit provides a tax savings up up to $9,600 for employers who hire people in groups favored by legislation — welfare recipients and veterans, for example. There was a hitch in the retroactive legislation, though. The WOTC requires employers to certify that new hires are eligible within 28 days of their start date. It’s difficult for employers to go back in time to January to comply with legislation enacted in December.

Fortunately, the IRS yesterday issued Notice 2015-13, giving employers until April 30 to obtain employee signatures on Form 8850 and submit them to the local job service to qualify 2014 hires for the credit.

Wages may qualify for the credit if paid to employees who were on public assistance or food stamps in the period before their hire date, certain veterans, or ex-felons. Details can be found on Form 8850 and its instructions.

 

No Walnut STTax Season is Saved! Obamacare Inflicts IRS Paperwork on New Victims (J.D. Tucille, Reason.com). “Perhaps the Affordable Care Act’s most-resented wrong against the American people will be initiating those previously exempt to the dull, often incomprehensible grind of Internal Revenue Service paperwork.”

Tax Season is Saved! State tax refund troubles spreading (Kay Bell).

Tax Season is Saved! IRS Paid $5.8 Billion In Fraudulent Refunds, Identity Theft Efforts Need Work (Robert Wood)

 

Megan McArdle, Will Obamacare Join Tax Season Chaos?:

Apparently, there is a movement afoot to get the Barack Obama administration to line up the Affordable Care Act’s open-enrollment period with tax season. The reason: Many people are going to find out in March or April that they owe a penalty for not having the minimum essential insurance coverage. Those unlucky people, who may decide they’d like to buy health insurance after all to avoid next year’s penalties, will be too late to go through that year’s open enrollment.

Oh, goody.

IMG_1274William Perez, Reconciling Advance Payments of the Premium Tax Credit. Though the results might not be pleasant.

Jason Dinesen, Tips For Financing a Small Business: Part 2 of 5 — Use Your Accountant as a Resource

Peter Reilly, Tom Brady’s MVP Truck Even More On The Tax Implications

Carl Smith, The Empire Strikes Back on Excessive Refundable Credit Claim Penalties (Procedurally Taxing)

TaxGrrrl, Taxpayers Sue Treasury, SSA, Alleging Improper Refund Seizures. “As the stories became more sensational – in part due to reports filed by The Washington Post – SSA was forced to announce that it would stop trying to collect debts that were more than ten years old. But by “stop,” they apparently meant ‘slow down… a little.'”

 

Kyle Pomerleau, Richard Borean, The Dual Tax Burden of S Corporations (Tax Policy Blog):
Top marginal tax rates for active shareholders then vary based on whether the last dollar is profit or wage. The following map shows the top marginal tax rate in each state for an active shareholder, assuming that their last dollar earned was a profit.
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Passive shareholders do not pay any payroll tax on their income since they do not draw a wage from the business. Instead, they are liable for the ACA’s Net Investment Income Tax of 3.8 percent, which only hits income over $200,000 ($250,000 for married filing jointly).

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I think this will motivate some S corporation owners to become surprisingly active in their retirement.

TaxProf, The IRS Scandal, Day 652

 

Kristine Tidgren ponders The Irony of Yesterday’s Limited ACA Penalty Relief (ISU-CALT). She notes that some employees whose employers terminated these plans in the face of the $100 per-day-per employee penalty end up worse off than those whose employers continued the plans and whose penalties were waived by the IRS in Notice 2015-17. “Bottom line, the employee of the compliant employer walks away with only about 60% of the benefit received by the employee of the noncompliant employer.”

And that is true, as far as it goes. The apparent purpose of these rules is to force employers to either sponsor a group health insurance plan under the employer SHOP marketplace (good luck with that in Iowa right now), or to send the employees to the individual exchange. So it wasn’t about whether employees were covered, it was about whether their coverage was done under the right government supervision.

But the Obamacare drafters were careless. While they imposed a $100-per-day, per employee penalty for sponsors of plans that reimburse employee premiums, they also left the tax incentives for such plans under Section 105 in place. So while one code section punished employers for reimbursing individual health premiums, another rewarded employees for receiving the reimbursements. Given the mixed message, no wonder many employers didn’t realize that their long-time employee benefit was suddenly a bad thing.

Of course, absent the waiver, many of the employees receiving a premium reimbursement would be much worse off — their employers would go broke paying a $36,500 non-deductible fine for each employee for the crime of covering their individual premiums. As bad results go, this is a lot worse than the loss of a tax benefit by the compliant employer’s employee.

 

Caleb Newquist, #BusySeasonZen: The Train Snowblower (Going Concern). In case you think you’re having a tough winter.

 

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Tax Roundup, 2/17/15: Iowa 2014 code conformity bill set to become final this week. And: tax season saved again!

Tuesday, February 17th, 2015 by Joe Kristan

IMG_1291Iowa Code Conformity Update. The bill updating Iowa’s 2014 tax law to include December’s retroactive “extender” bill, SF 126,  was officially transmitted to the Governor yesterday. He has three days to act; if he doesn’t sign within three days, the bill becomes law automatically. That means it will be official this week, unless the Governor shocks everyone with a veto.

The bill adopts almost all of the “extender” items, including the $500,000 Section 179 deduction, but it does not adopt 50% bonus depreciation for Iowa.

Update, 2:30 pm. The bill is signed.

 

 

The tax season is saved!  Covered California Sends Out Nearly 100,000 Tax Forms Containing Errors, Others Deal With Missing Forms (CBS San Francisco):

Stacy Scoggins gets plenty of mail from Covered California, but the one tax form the agency was required to send her by February 2nd still hasn’t arrived.

“After being on hold for 59 minutes, told me that the 1095-A was never generated,” Scoggins told KPIX 5 ConsumerWatch.

When they finally do get their forms, many of them will find out that they have to repay advanced premium tax credits, as Insureblog’s Bob Vineyard reports in Paybacks are hell, quoting a MoneyCNN report:

Some 53% of Jackson Hewitt clients who received subsidies have to repay part or all of it, with the largest being $12,000, said Mark Steber, chief tax officer. 

Clients love to hear that they owe.

Related: Oops (Russ Fox).

 

Kay Bell serves up 6 ways to get electronic tax help from the IRS

Accounting Today, IRS Eases Repair Regulations for Small Businesses

Josh Ungerman, IRS Expected To Issue Hundreds Of Deficiency Notices TO USVI Residents.

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Tony Nitti, Lance Armstrong Ordered To Repay $10 Million Of Prior Winnings: What Are The Tax Consequences?  They could be ugly.

Kristine Tidgren, Value of Closely Held Corporation Increased in Dissolution Proceeding (ISU Center for Agricultural Law and Taxation).

Robert Wood, Marijuana Tax Up In Smoke? Don’t Worry, Feds Plot 50% Tax.

Peter Reilly, Islamic Teaching On Usury Kills Property Tax Exemption In Tennessee

Jack Townsend, ABA Tax Lawyer Publication Comment on FBAR Willful Penalty

 

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Matt Welch, Record Number of Americans Renounce Citizenship in 2014 (Reason.com). “Terrible tax law produces predicted results”

TaxProf, The IRS Scandal, Day 649

 

Norton Francis, State Revenue Growth Will Remain Sluggish (TaxVox)

Sebastian Johnson, State Rundown 2/13: Snow Way Forward (Tax Justice Blog). Developments in Oklahoma, Arizona, North Carolina, Mississippie and Massachusetts, from a left-side view.

 

Things that are better now. From Don Boudreaux, a reminder of one area where a dollar goes a lot further than it used to:

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I dare you to access taxupdateblog.com from the Olivetti.  More at HumanProgress.org.

 

 

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Tax Roundup, 2/13/15: Gas tax advances, tax system declines.

Friday, February 13th, 2015 by Joe Kristan

Accounting Today visitors: click here for the post on the updated auto depreciation limits.

 

IMG_1284It looks more likely that I was wrong in predicting no gas tax increase. Subcommittees in both the House and Senate Ways and Means committees approved a 10-cent per gallon increase this week, advancing the increase to the full committes. KCRG.com reports:

A group of top lawmakers from both parties and Gov. Terry Branstad have proposed the 10-cent gas tax increase, which is expected to generate more than $200 million annually.

Supporters say the gas tax is the most fair and equitable way to generate funds for road construction.

At least it looks like my backup bet — that a gas tax increase would indicate that Governor Branstad won’t run for another term — is looking better.

 

taxanalystslogoChristopher Bergin, Reform What? (Tax Analysts Blog). It has a great teaser line: “Yes, it sure is fun thinking about tax reform. And doing nothing about it could be fun as well. We might get to watch this colossal structure collapse soon.”

Christopher goes on to explain:

But all this talk has me thinking about other things, too. Which tax system will we reform – or at least start with? Should it be the one most of us are struggling to comply with -– the one that about half of us “regular” taxpayers still have to pay taxes under? You know, the one with deductions for charitable contributions that we’d make anyway — the one that discriminates between people who own a house and rent a house. The one that’s so confusing, many of us just turn our taxes over to a paid preparer or a paid-for program to figure out. Let’s not forget that if you’re doing well under this tax system, you win a prize: the alternative minimum tax (which is sort of a booby prize).

Or maybe we should start by reforming the IRS, which has become so broke and inept that it can’t afford to help your grandmother find the line on her Form 1040 for the dependents she can no longer claim. That’s the agency that is also supposed to enforce the law so that none of us “regular” taxpayers are the true suckers in all this. (How’s that working out for you?)

Lots of that sort of cheerful stuff. In some ways the system is already collapsing before our eyes. A system that wires $21 billion annually to thieves — and it’s getting worse quickly — isn’t built to last.

 

Des Moines Register, 16 companies claim 82 percent of Iowa’s R&D tax credits. “In all, 265 companies claimed about $51 million in credits for research and development last year, the report shows. Of that, 16 companies claimed $42.1 million.”

My coverage of the story from yesterday is here: The Federal $21 billion thief subsidy; the Iowa $37 million corporation subsidy.

 

William Perez, If You Drive for Uber, Lyft or Sidecar, These Tax Tips are Just for You

20150105-2Kay Bell, IRS drops some features in latest app upgrade

Jim Maule, Self-Employment Income Not Offset by NOL Carryforward

Carl Smith, The Eight Circuit Gives Both Sides a Hard Time on What is a “Separate Return” for Section 6013(b) Purposes (Procedurally Taxing). ” Does the limit on changing from a “separate return” to an MFJ return after filing a Tax Court petition only apply where a taxpayer initially filed an MFS return (as the taxpayer argues), or does it also apply where a taxpayer initially filed a “single” or HOH return (as the government argues)?”

Robert Wood, Nine Habits of Exceptionally Tax-Averse People. Numbers 5 and 6 are key.

TaxGrrrl, Are You Insured? Obamacare Deadline Quickly Approaching

Tony Nitti, Republicans, Democrats Agree On Tax Issue; Winter Storm Warning Issued For Hell. Tony, gang truces are more common than you’d think.

Jack Townsend, Structuring 20150119-1Forfeitures Again in the News (my emphasis):

After taking considerable heat on which we reported before, the IRS has hunkered back to a policy that generally (that’s a fuzz word) will allow seizure only where the IRS has proof of illegal income.  So, under the new law, generally the innocents (meaning those without illegal income) can intentionally violate the structuring law without being subject forfeiture and presumably without being subject to structuring prosecution. It seems to me that Congress should change the law rather than have the IRS not enforce the law as Congress wrote it or to signal to citizens that they can violate the law with impunity so long as they do use illegal funds.

I think Jack gives too much credit to the IRS, as if they have only been taking money when there was “intentional” structuring. The news reports have shown there are plenty of reasons to make deposits before you have $10,000 on hand, including insurance policy restrictions and the common sense idea that you don’t leave too much cash sitting around. But IRS didn’t inquire as to whether there was any actual intent to keep deposits low; they just took the money.

While the IRS has plenty to answer for in its seizure policy, I agree that Congress is just as guilty, passing laws allowing asset seizures without barely a nod at due process and without a hearing.

 

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TaxProf, The IRS Scandal, Day 645

Amber Erickson of Tax Justice Blog boldly makes The Case for Keeping the Medical Device Tax,

Health insurance providers, pharmaceutical companies, and the medical device industry are all expected to gain from the ACA by earning greater profits as more people enter the healthcare marketplace. The tax is intended to reciprocate those benefits by tacking on a small flat rate to a firm’s revenue.

But that tax is only on the medical deveisces, not “health insurance providers,” the big winner, and not on pharmaceuticals. It really isn’t on the device industry; it is on the people who need them.

 

Eric Cedarwell, Senator Bernie Sanders’s New Deal for America (Tax Policy Blog).

 Inspired by Roosevelt’s New Deal in many regards, Senator Bernie Sanders (I-VT) recently outlined his vision for America, featuring expansionary government spending policies. A major federal jobs program, a hike in the minimum wage to at least $15, expansion of Social Security, Medicare, Medicaid, increased regulation of Wall Street, and protectionist trade policies are examples of initiatives Sanders emphasized. However, Sen. Sanders provided little information on how he might finance his vision.

In other words, a reprise of the policies that put the “great” in the Great Depression.

Howard Gleckman, Lawmakers Talk Tax Reform But Keep Pushing New Tax Subsidies (TaxVox). Of course they do.

 

Caleb Newquist, When Is the Right Time to Start Your Own Accounting Firm? (Going Concern). December 19, 1990 worked for us. I think it was about 8:30 am.

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Tax Roundup, 2/11/15: Iowa Code Conformity, America’s more selective appeal, and your tax dollars at work in the $1 DVD bin.

Wednesday, February 11th, 2015 by Joe Kristan

IMG_1284The Iowa Code Conformity bill goes to the Governor. The Iowa House yesterday approved the Senate-passed bill, SF 126, to update Iowa’s 2014 tax law for the federal “Extender” legislation approved in December. Iowa will conform to the federal legislation, including the $500,000 Section 179 limit, but will not adopt the federal bonus depreciation.

The Governor is expected to sign the bill.

 

Our appeal is just getting more selective. 2014 – More Expatriations Than Ever (Andrew Mitchel):

Today the Treasury Department published the names of individuals who renounced their U.S. citizenship or terminated their long-term U.S. residency (“expatriated”) during the fourth quarter of 2014. 

The number of published expatriates for the quarter was 1,062 (second highest quarter ever), bringing the total number of published expatriates in 2014 to 3,415.  The total for the year breaks last year’s record number of 2,999 published expatriates. The number of expatriates for 2014 is a 14% increase over 2013.  

Chart by Andrew Mitchel LLC

Chart by Andrew Mitchel LLC

Expatriation is often an inconvenient and expensive process. The willingness of so many to go through the hassle is disgraceful evidence of the burden the “shoot the jaywalker” penalties of the foreign account reporting rules and FATCA impose — on top of America’s unique worldwide taxation regime.

Related: Thousands Renounce U.S. Citizenship Hitting New Record, Not Just Over Taxes (Robert Wood)

 

haroldYour tax dollars at work in HollywoodWhen Sony’s emails were hacked, the companies executives were embarrassed by the emails complaining about “spoiled brat” starlets and other insider dish that was exposed. But Tax Analysts’ Brian Bardwell shows that the state legislators who have approved taxpayer funding around the country for filmmakers also have plenty to be embarrassed about. From the subscriber-only story:

While the broader topic of film incentives comes up daily, it appears that top executives — at Sony, at least — are not usually involved in finding credits for individual projects, but when they are, it may be because the film is unlikely to bring in enough money to justify producing it without a government subsidy.

In other words, taxpayers are financing the marginal direct-to-DVD projects for Hollywood. That comes as no surprise to those of us who followed Iowa’s disastrous Film Tax Credit story. In a story line right out of “The Producers,” inflated expense claims allowed awful films to be made without the need to ever get a paying customer — the sale of the resulting transferable tax credits covered the expenses and generated a profit — not counting the attorney fees and jail time, of course.

 

Kay Bell, Tax fraud concerns in Minnesota, Connecticut & now Florida:

“The personally identifiable information apparently hacked at Anthem is exactly what tax fraud thieves use to make false refund claims that appear to be legitimate,” said Department of Revenue Services Commissioner Kevin Sullivan. Sullivan is suggesting that residents beat tax ID thieves to the punch.

Great.

 

Peter Reilly, Breaking – Repair Regs – AICPA Says Help On The Way – Maybe. “The only thing that I find really encouraging about the AICPA announcement is that I can show it to my partners and justify my wait and see approach, which now apparently has the imprimatur of the AICPA.”

TaxGrrrl, UNRETIREMENT. “The Social Security and tax laws hold hidden traps and rewards for the growing army of well-off folks who just keep on working.”

Leslie Book, Congress Considering Procedural Legislation (Procedurally Taxing).

Jack Towensend, Judge Jed Rakoff Reviews Brandon Garrett’s Book on Too Big to Jail: How Prosecutors Compromise with Corporations

 

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David Brunori, It’s Time to End Property Tax Exemptions — for Everyone (Tax Analysts Blog).

City governments are usually looking for payments in lieu of taxes rather than ending exemptions. And the nonprofits — particularly universities and hospitals — tenaciously oppose paying. To be sure, some municipalities and exempt organizations have reached a compromise on payments in lieu of taxes, particularly in Boston. But in the vast majority of the nation, universities, nonprofit hospitals, and property owned by religious organizations are exempt from tax.

I propose we end those exemptions. First, let’s be honest — if you narrow the tax base by exempting some property, everyone else pays more. So in Brunswick, Maine, people and businesses pay more property taxes because Bowdoin College doesn’t. And sometimes they pay a lot more.

Sometimes it can be confusing. Des Moines officials will freely complain about the big hospitals not paying property taxes, but they lacked enthusiasm when the two big non-profit hospitals in town opened new hospitals in the suburbs.

 

Scott Drenkard, Richard Borean, How Many Cigarettes Are Smuggled Into Your State Each Year? (Tax Policy Blog). A lot more since they jacked up the cigarette tax a few years ago.

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The threat of lost cigarette revenue is the real reason state officials are so horrified by the vaporous health risks of e-cigarettes.

 

Renu Zaretsky, Tax Preferences, Investigations, and Settlements. Today’s TaxVox headline roundup covers Senator Hatch on tax reform, financial supergenius Bernie Sanders on Social Security, and more Swiss bank tax troubles.

Sebastian Johnson, State Rundown 2/10: Semi-Encouraging News (Tax Justice Blog)

Joseph Thorndike, When It Comes to Tax Reform, History Tells Us What Might Happen – And Why It Probably Won’t (Tax Analysts Blog). “The 1986 reform happened not because it was wise and prudent and necessary, but because it worked politically. And even then, only barely.”

TaxProf, The IRS Scandal, Day 643

 

News from the Profession. The Annual Close: The Year in Adverse Accounting Jokes (Adrienne Gonzalez, Going Concern).

 

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Tax Roundup, 2/10/15: Iowa House may vote on conformity today. And: pass-through isn’t the same as “small.”

Tuesday, February 10th, 2015 by Joe Kristan

IMG_1284Iowa Conformity Update: No action yesterday in the Iowa House on SF 126, the Senate-passed bill that conforms Iowa income to federal rules, except for bonus depreciation. The house version of the bill, HF 125, is scheduled for debate today in the Iowa House. That means we may have a vote today.

Update, 9:15 a.m. SF 126 passes Iowa House, 94-0. The Senate-passed bill was substituted for HF 125 on the floor and approved. It now goes to the Governor, who is expected to sign.

 

Kyle Pomerleau, Some Pass-Through Businesses are Significant Employers (Tax Policy Blog):

In the United States, most businesses are not C corporations. 95 percent of businesses are what are called pass-through businesses. These businesses are called pass-throughs because their income is passed directly to their owners, who then need to pay individual income taxes on it. Contrast this with C corporations that need to pay the corporate income tax on its income before it passes its earnings to its owners. Combined, pass-through businesses employ 55 percent of all private-sector workers and pay nearly 40 percent of all private-sector payroll.

When business income is taxed on the 1040 and income tax rates are raised, the business has less income to hire and grow.

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Not recognizing the fact that pass-through businesses can be large employers can bring about poor policy choices. For example, increases in the top marginal individual income tax rate will not only hit individuals with high wage income or business income, it may hit a significant number of large employers who are organized as pass-through businesses. Conversely, some policies that are aimed at helping small businesses, such as state-level pass-through business income tax exemptions, could incidentally benefit large established businesses.

Unfortunately, no individual rate is ever high enough for some people.

 

younker elevatorsHoward GleckmanTax Subsidies May Not Help Start-Ups as Much as Lawmakers Think (TaxVox):

But the biggest reason startups may be unable to take advantage of tax subsidies is that they often lose money in their early years. In theory, generous preferences such as Sec. 179, the research and experimentation credit, or even the ability to deduct interest costs are all available to startups. In reality, many cannot use them because they make no profit and, thus, pay no tax.

Firms can carry net operating losses forward for up to 20 years but these NOLs are far less valuable than immediate deductions for three reasons—money loses value over time, some firms never generate enough income to take full advantage of their unused losses, and some lose their NOLs when they are acquired. A 2006 Treasury study found that at least one-quarter of these losses are never used and others lose substantial value.

One way to help this problem would be to increase the loss carryback period. Businesses can only carry net operating losses two years. Corporations in Iowa and some other states can’t carry them back at all.

Consider a business that has income in year one, breaks even in years 2 and 3, and loses enough to go broke in year four. It never gets the year 1 taxes back, even though over its life it lost money.

An increased loss carryback period would be especially useful to pass-through owners, enabling some of them to get tax refunds to keep their businesses alive. But once the government has your money, they hate to give it back.

Loosening the “Sec. 382″ restrictions on loss trafficking would also help. A struggling business would be more likely to get investment funds if the investor could at least count on using some otherwise wasted tax losses. But the government is more interested in protecting its revenue than in helping struggling businesses.

 

Department of Foreseeable Unintended ConsequencesTax Analysts Jennifer DePaul reports ($link):

 While a joint session of the New York State Legislature on February 9 heard Democratic Gov. Andrew Cuomo’s $142 billion budget proposal, the governor released more details about several tax measures included in his budget plan.

Among them was a proposal designed to crack down on tax scofflaws by suspending the driver’s licenses of debtors who owe the state as little as $5,000.

This means taxpayers with relatively small balances due will be deprived of their legal transportation to get to work. This means some taxpayers will have to quit their jobs and never get caught up with their debt, leading to a financial death spiral. Others will try to get to work, get locked up for driving on a suspended license, lose their jobs because they didn’t show up, and go into a financial death spiral. It’s a recipe for locking more people into the underclass because their Governor wants their money faster.

Related: Brian Doherty, Drivers License Suspensions Slamming the Working Poor for No Particular Good Reason in Florida  (Reason.com); Megan McArdle, Cities Dig for Profit by Penalizing the Poor

 

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Russ Fox, Harassing IRS Agents Isn’t a Bright Idea. “Speaking of ways to get in trouble with the IRS, one is to harass an IRS agent. They don’t like it (and it’s a crime).”

Tony Nitti, Are You Exempt From The Obamacare Insurance Penalty?

Robert Wood has 7 Reasons Not To File Your Taxes Early, Even If You’ll Get A Refund. “Measure twice, cut once.”

Paul Neiffer, How Do Repair Regulations Affect My Farm Operation? It does. Find out more when Paul helps present a webinar on the topic for the ISU Center for Agricultural Law and Taxation February 18.

William Perez, How Dividends Are Taxed and Reported on Tax Returns

 

Peter Reilly, Tax Court Hammers IRS CI Who Went Out Into The Cold. The strange, sad saga of Joe Banister.

Leslie Book, Some More Updates on IRS Annual Filing Season Program and Refundable Credit Errors. Leslie thinks that preparer regulation would help. I believe the persistent high rate of incorrect EITC payments in spite of increasing IRS initiatives to bug preparers and force them to document due diligence for EITC clients shows that preparer regulation won’t solve this problem.

Jason Dinesen, Send a 1099-C to a Non-Paying Customer? Updated. Probably unwise.

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Jeremy Scott, Finance Committee Review of 1986 Act Smacks of Desperation (Tax Analysts Blog):

The Senate Finance Committee will try to use history as a guide to break the logjam on tax reform. The Republican-led body will hold a February 10 hearing featuring former Finance Chair Bob Packwood and former Sen. Bill Bradley, who will talk about the process that led to the historic legislation that redefined the tax code and has left its imprint on the minds of would-be tax reformers for almost three decades now. However, looking back at 1986 appears more desperate than inspired because most of the factors that existed then are almost totally absent now.

I think all this Congress can accomplish is to not make things work, and to lay the groundwork for a tax reform that might be enacted in a more congenial political climate.

 

TaxProf, The IRS Scandal, Day 642.

 

Career Corner. Let’s Discuss: Wearing Headphones at the Office (Jesstercpa, Going Concern). You can tell you are moving up in the CPA world if you get an office with a door, and you can use actual speakers. Unless you are in one of those hideous “open offices,” of course.

 

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Tax Roundup, 2/5/2015: Conformity bill passes Iowa Senate with Sec. 179, but without Bonus. And: buy Maserati, or pay tax?

Thursday, February 5th, 2015 by Joe Kristan

Iowa Senate passes conformity bill. The Iowa Senate sent the 2015 “code conformity” bill (SF 126) to the House yesterday on a 49-0 vote. The bill, conforms Iowa’s 2014 tax law to reflect December’s “extender” legislation, including the $500,000 “Section 179″ deduction, but not including bonus depreciation.

The House could vote on the bill as early as today, though it’s not on this morning’s House debate calendar. Still, with the bill out of the Senate, it seems like a sure thing, even if it has to wait until next week.

ice truck

 

There may have been a flaw in the planThe former owner of Arrow Trucking Company pleaded guilty yesterday to tax charges connected with the 2010 failure of the company.

The “information” containing the charges outlines an energetic looting of the company that brought in a host of helpers — and potential informants. For example:

In about September 2009, a conspirator asked an Arrow Trucking Company employee to have a telephonic communication with a representative of Transportation Alliance Bank with respect to an audit and to falsely verify the authenticity of fraudulent invoices.

Well, that’s one witness right there. And here’s another.

In about December 2009, a conspirator asked an Arrow Trucking Company employee to have a telephonic communication with a representative of Transportation Alliance Bank with respect to an audit and to falsely verify the authenticity of fraudulent invoices.

Well, no harm no foul — they had pretty much made sure the IRS would catch up with them, if the information is to be believed. They failed to file the federal Form 941 payroll tax returns for 2009, or to remit the payroll taxes for those quarters. That’s a sure way to attract IRS attention. And once the IRS started sniffing around, they left a lot of clues for the IRS in the alternative uses they made of the withheld taxes. These other things included payment of $20,000 in company funds to an ex-wife. But that didn’t mean the next ex was slighted:

During the year 2009, Arrow Trucking Company funds were used to make payments to The Events Company for a conspirators wedding.

They should have been able to leave the wedding in style:

During 2009, Arrow Trucking Company Funds were used to make payments related to a Bentley automobile for the benefit of a conspirator.

Or maybe, honey, we want something a little sportier:

During 2009, Arrow Trucking Company Funds were used to make payments related to a Maserati automobile for the benefit of a conspirator.

It all seems like fun and games, but that fun led to this:

In December 2009, the carrier left hundreds of its drivers stranded on highways across the United States after a Utah bank voided company fuel cards.

Between halting payroll tax returns, using company funds for lavish toys, and getting employees to lie for them, they pretty much made sure the feds would visit, belt and suspenders. The IRS audit program for businesses is designed to find such things, but it sounds like they left a pretty easy trail to follow.

 

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

Peter Reilly, Mr. Koskinen’s Last Chance To End The Form 3115 Madness:

Here is the crisis.  Some very smart people with a lot of influence in the tax industry are telling all the rest of us the following story.  You know those new regulations are telling you to change your accounting methods.  Even if you look at what you’ve done over the years and decide that there is no income or expense to be picked up it is still an accounting method change.  Given all the new concepts you could not possibly have been using those methods.  So if your client has any sort of a trade or business, there are one or more Forms 3115 that have to be filed. 

If he was as keen on preserving limited IRS resources as he keeps telling Congress, he would announce that taxpayers could adopt the new accounting methods without a 3115 by attaching an election to their return, if they prefer it that way. That would save forests, and enormous amounts of IRS storage space.  But if he were serious about maximizing agency resources, he also wouldn’t allow 200 IRS employees to collect government checks for union work, and he wouldn’t divert IRS resources into a “voluntary” preparer regulation scheme.

 

TaxProf, The IRS Scandal, Day 637. This edition links to a Bloomberg piece about the Commissioner’s recent Senate testimony: IRS Chief: I Don’t Want to Be Seen As Influencing 2016. I take that as meaning he wouldn’t mind influencing  the elections; he just doesn’t want to be seen doing so.

 

Robert Wood, Coming Soon: No Travel Or Passport If You Owe IRS. What could go wrong?

 

Kay Bell, Seven tax extenders approved by Ways & Means Committee. Similar to the permanent extenders that passed the house and died last year, they can be seen as a counter to the President’s tax proposals in his budget.

Robert Goulder, Smart Tax Reform: Parity for Passthroughs (Tax Analysts Blog):

An obvious difficulty in business-only tax reform is devising a means to level the playing field between corporate and noncorporate entities. The overwhelming majority of commercial enterprises in the United States (roughly 90 percent) are not organized as corporations. They take alternate forms such as S corporations, partnerships, LLCs, or sole proprietorships. The primary difference, of course, is the lack of entity-level taxation for noncorporate businesses.

Unless you hate pass-throughs, as the administration seems to.

 

Kyle Pomerleau, The President Proposes Changing the International Tax System for Corporations (Tax Policy Blog)

 

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Cara Griffith, Texas Comptroller to Look to Legislature for Guidance on Taxing Aircraft (Tax Analysts Blog)

Tracy Gordon, A Fuller Accounting of How State and Local Governments Fared in the Great Recession (TaxVox).

 

News from the Profession. Let’s Catch This PwC Partner Up on the Fun Stuff She Missed Over the Last 20 Years (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 1/29/15: Iowans, fill ’em up now. And: lessons from the Obama Sec. 529 retreat.

Thursday, January 29th, 2015 by Joe Kristan

dimeFill me up. ‘Overall consensus’ toward 10-cent hike in state gas tax O. Kay Henderson reports:

 Key legislators say a 10-cent increase in the state gas tax has a good chance of passing the legislature in February and going into effect as early as March.

“I think the overall consensus is to go 10 cents now…We’re so far behind that we need to implement it right away,” Senator Tod Bowman, a Democrat from Maquoketa who is chairman of the Senate Transportation Committee, said this morning.

At the opening of this session of the General Assembly, I guessed that there would be no gas tax boost. It’s looking more likely every day that I was wrong. I asked a few legislators and lobbyists about it when I attended the Iowa ABI Legislative Reception, and they all said a 10-cent gas tax boost was a done deal.

That would test my alternative forecast – that if there was a gas tax boost, it meant Governor Branstad will not run for a seventh term.

 

csi logoAlan Cole, President’s Plan to Tax 529s Was Not a Distraction (Tax Policy Blog):

While the issue was, perhaps, a distraction from the administration’s priorities on community college, it was not at all a distraction from the administration’s priorities on tax policy. It is deeply philosophically consistent with virtually every tax policy proposal, proposed or enacted, from the administration.

The administration’s proposals all tend to follow a particular blueprint for tax policy: simply put, that when Americans save by investing in some kind of asset, that they should be taxed at ordinary income rates on both the initial value of the asset and all the future returns on the asset. (For example, with 529 plans, the initial investment is taxed, and the Obama Administration’s proposal is to tax the returns as well.) This view is mistaken, in that a financial asset’s value is precisely in its future returns. The value of the financial asset, then, is taxed twice. 

The difference here is that the administration has dressed up its tax grabs by saying only “the rich” would have to pay. That’s never really true, but it was so obviously wrong here that even the President’s allies couldn’t support it with a straight face.

 

IRAJoseph Thorndike, What Obama’s 529 Flip-Flop Says About Your Roth IRA (Tax Analysts Blog):

The bursting of the 529 trial balloon should serve as an object lesson for anyone hoping to rein in other tax preferences. In particular, proposals to scale back Roth IRAs – popular among liberal analysts – seem hopeless in the extreme.

I think the dumbest thing was pairing the elimination of a tool to enable people to save for education costs with the unwise “free” community college proposal. That was pretty much saying those who want to pay their own way through college without government grants are chumps.

TaxProf, The IRS Scandal, Day 630. It has become an issue in the hearings for the Attorney General nominee.

 

Jason Dinesen, What I’m Asking My Clients Regarding the ACA. Pretty much what we are asking our clients.

TaxGrrrl, Form 3115 Adds Confusion & Cost – But May Be Required For 2015. “Since there’s no user fee – and virtually no risk – I tend to agree with those who suggest that businesses owning real and/or tangible property err on the side of caution and file form 3115 to obtain automatic consent.”

Robert Wood, Missing A Form 1099? Why You Shouldn’t Ask For It “Nevertheless, if you don’t receive a Form 1099 you expect, don’t ask for it. Just report the income.”

Tony Nitti, Super Bowl XLIX Tax Tale Of The Tape: Who Ya’ Got? Meh. My football rooting interest ended in Seattle. But for socially-awkward tax nerds (but I repeat myself) who are going to Super Bowl gatherings, Tony has a lifeline.

 

20140512-1Peter Reilly, Don’t Use The IRS To Address Koch Political Spending. Whether it’s Tom Steyer, George Soros, or the Brothers Who Must Not Be Named, the government has no business telling them what causes they can fund.

Russ Fox, Caesars Wins Round One: Chicago, not Delaware. Caesars Entertainment’s bankruptcy litigation, that is.

Carl Smith, Unpublished CDP Orders Dwarf Post-trial Bench Opinions in Uncounted Tax Court Rulings (Procedurally Taxing). Insight on what Tax Court judges do that those of us who don’t do that sort of litigation for a living don’t see.

Jack Townsend, Unreported Offshore Accounts Remains on IRS Dirty Dozen” List

Kay Bell, Illinois shoppers to start paying state sales tax on Amazon purchases on Feb. 1; federal online tax bill still stalled

 

Tax Trials: Georgia Tax Tribunal Rules that Electric Utility’s Machinery and Equipment Used in Transmission and Distribution System Not Exempt from Georgia Sales & Use Tax. Bad tax policy all over. Business inputs should not be subject to sales tax.

Cara Griffith, Tax Appeal Reform May Be a Possibility in Washington State (Tax Analysts Blog)

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David Brunori, Regressive Taxes Are Neither New Nor Good (Tax Analysts Blog): “States should also broaden the sales tax base to tax things rich folks buy, while lowering the tax rates on the things the poor consume the most. But the rich will remain rich.”

Steven Rosenthal, Is Obama Closing Retirement Savings Loopholes or Just Curbing Congress’ Generosity? (TaxVox). How about another choice – he’s just looking to increase taxes on “the rich” any way he can get away with?

Richard Phillips, Congress Should Pass the Stop Tax Haven Abuse Act to Combat International Tax Avoidance. (Tax Justice Blog). I have a better idea: a less onerous tax system that would make international tax avoidance less attractive.

 

Career Corner. The Public Accountant’s Definitive Guide to Disclosure of Past Convictions (Adrienne Gonzalez, Going Concern)

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Tax Roundup, 5/5/14: The Iowa Legislature’s tax grade: D minus, again.

Monday, May 5th, 2014 by Joe Kristan
Via Wikipedia

Via Wikipedia

The Iowa Legislature has gone home to get re-elected.  As usual, they left the Iowa tax law a little worse than they found it.  They did pass a few new special breaks for their friends and for politics, but they did nothing to simplify Iowa’s high-rate, high-complexity system full of hidden treats for the well-lobbied.

The bills passed include:

A refundable $2,500 adoption credit (HF 2468).  Refundable credits are always a bad idea.  There was apparently no discussion over whether the credit is really needed, or a better use of money than alternate programs, but because a legislator had an expensive adoption, it became a priority.

Sales tax rebates for the Newton racetrack (SF 2341and the Knoxville Raceway (HF 2464).  The bills let each track keep sales taxes they collect — a sweet deal, and an advantage for two taxpayers over every other taxpayer.

Biodiesel tax credits.  SF 2344 gives biodiesel producers two cents per gallon of taxpayer money, in the form of refundable credits, through 2017.  The credit was to expire at the end of 2014.  This is necessary to keep taxpayer dollars flowing to producers until the next time the credit is set to expire, when they will extend it again, just one more time, I promise.

20120906-1HF 2448 passed, providing for easier qualification for the “High Quality Jobs Program” tax credit and a new “Workforce Housing Tax Incentives Program,” which will provide tax credits to housing developers meeting certain conditions designed, no doubt, by one of their lobbyists.  This will do away with the hobo camps that have not sprung up around job sites around the state.

The only really useful thing they passed was the “code conformity bill (HF 2435) to conform Iowa income tax law to include federal tax law changes made in 2014.  In some years they have failed to do so until the end of the session, leaving taxpayers and preparers guessing at the tax law for most of the filing season.

Of course, it could have been worse.  Not every special interest bill passed.

The most prominent failure was that of HF 2472, a bill to provide tax credits for expanding broadband service.  This was a priority of Governor Branstad, killed by a coalition of Democrats who say they wanted bigger credits — but who may have just wanted to hand the Governor a defeat — and Republicans who thought the bill was badly designed.  S.F. 2043, which would have provided a special tax exemption to employee-held stock gains, failed to move.  A proposal to provide a tax credit for student loan payments went nowhere.  A crazy proposal  (H.F. 2270) to pay doctors with tax credits for “volunteering” — at their average hourly rate! — died.

Not everything that died was awful.  HF 2129, which would have expanded the Iowa “Ten and Ten” capital gains break to sales of business interests, never made it out of committee.  Nor did SF 2222, which would have repealed the Iowa inheritance tax.

 

They also failed to pass SSB 3216, the bill to update the Iowa tax appeals system and to remove the Director of the Department of Revenue from the process.  Maybe they can do better next time by also enacting an Iowa tax court.  It seems reasonable to have, say, three district judges from around the state convene as a tax court.  They could give taxpayers a shot at a judicial forum where the judges will have actually heard an income tax case before.

Most importantly, they didn’t even try to address Iowa’s highest-in-the-nation corporate tax rate, its high individual tax rate, or the baroque complexity of Iowa’s income tax for everyone –– other than by making it a little worse with a few new special breaks for special friends.  That means the legislature gets another D-, in my report card, with only the timely passage of the code conformity bill saving them from an F.

But who knows? Elections coming this fall could bring in a few more legislators less intent on taking your money and giving it to friends with lobbyists, to build on the tiny signs of progress seen this session.  Who knows, maybe someday a real tax reform, like the Tax Update’s Quick and Dirty Iowa Tax Reform Plan, will actually get a hearing.

 

20140505-1The Iowa legislative summary took too long, so only a few quick links this morning — I’ll try to catch up tomorrow:

 

TaxProf, The IRS Scandal, Day 361

Russ Fox, Yes, Mom, I Need to See Your ID.  This one I will spend more time on — the IRS, without consultation, plans to make e-filing much more difficult and expensive for everyone, to punish us for their failure to stop ID-theft fraud.

Philip Panitz, Welcome to America, Now Give Us Your Money! (A guest post on Janet Novack’s Forbes blog).  An excellent summary of how the tax law clobbers immigrants, and one I should spend more time on.

Kay Bell, Representatives want to prevent Los Angeles Clippers’ owner Donald Sterling from deducting his $2.5 million NBA fine.  Not every problem is a tax problem, guys.

TaxGrrrl, Union: Privatizing The Sale Of Alcohol Will Kill Children, Lower Tax Revenue.

 

 

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Tax Roundup, 5/1/14: Iowa remains on top! Oh, that’s bad.

Thursday, May 1st, 2014 by Joe Kristan

The Iowa House of Representatives has adjourned for the year.  That makes it official: Iowa will continue to have the highest corporation income tax rate in the U.S. for another year, as shown on this map from The Tax Foundation:

2014 Corporate Income Tax Rates

The U.S has the highest corporation tax rate of all OECD countries, so that means right here in Iowa we have the highest corporation income tax rate in the entire developed world.  That’s true even taking into account Iowa’s 50% deduction for federal corporation tax.  Whoopee.  That must mean that Iowa receives just gushers of corporate cash, right?

Wrong.  The Iowa corporation tax generated $403.6 million net revenue in calendar 2013, amounting to about 5.3% of state tax revenues.  The individual income tax, by contrast, generated $3.45 billion net revenue in the same period. (Figures available here.)

The net is so low because the corporation tax, like the Iowa income tax, is riddled with special credits and deductions for the well-connected and well-lobbied.  Some of the biggest corporations in Iowa pay no tax and, in fact, actually get multi-million dollar checks out of the Department of Revenue.

There’s nothing good about this system.  It’s brutal for small corporations without the lobbyists and pull to land big breaks.  Meanwhile, big corporations use their resources to skip around the tax, or even to profit from it.  The high rates and complexity drives away corporations who don’t want to play the influence game, while luring those who play it like a fiddle.  Far better to wipe out the tax and the accompanying subsidies with something like The Tax Update Quick and Dirty Iowa Tax Reform Plan!

Related: David Brunori, I Will Ask Again, Why Are We Taxing Corporate Income? (Tax Analysts Blog). “There is an increasingly influential school of thought that says the tax is borne by labor in the form of lower wages.”

 

Peter Reilly, Alimony That Does Not Look Like Alimony.  “So if an agreement says that the payments are to be treated as alimony for tax purposes, that really means nothing.  What matters is whether the requirements are met…”

 


20130114-1Roger McEowen, 
Analyzing Hedging under Obamacare’s Net Investment Income Tax Final Regulations.  “… a sole proprietor farmer’s income from hedging activity, or hedging income of a farming entity structured as pass-through entity is not subject to the NIIT, because the farmer or entity is engaged in the trade or business of farming and not the trade or business of trading in commodities.” 

William Perez, Tax Reform Act of 2014, Part 7, IRS Administrative Proposals Impacting Individuals.

Annette Nellen, How sales tax exemptions can waste one’s time.  “Recent litigation in Missouri over whether converting frozen dough into baked goods is “processing,” such that the electricity used is exempt from sales tax, shows the time and money that can be wasted with pointless rules.”

TaxGrrrl, Considering The Death Penalty: Your Tax Dollars At Work.  It should give pause to those who think the government should be the provider of health care when it can’t even kill somebody well.

Um, to save hundreds of millions of shareholder dollars?  Why Does Pfizer Want to Renounce Its Citizenship? (Tax Justice Blog). 

 

20121004-1Renu Zaretsky, Competition and Tax Reform: A Thorn in Everybody’s Side.  The TaxVox headline roundup.

Kay Bell, Amazon begins collecting sales tax from Florida buyers May 1; Will the online retailing giant lose even more customers?

Stephen Olsen, Did Donald Rumsfeld Just Invalidate His Return?  (Procedurally Taxing) “…he just wanted to be able to understand how his tax bill was computed.  Overall, not an unreasonable position, but perhaps a pipedream.”

Jack Townsend, Another Credit Swiss Related Bank Enabler Pleads Guilty

 

taxanalystslogoCara Griffith, The Problem With Outcome-Based Jurisprudence (Tax Analysts Blog).  ” It is not for the court to worry about how the state will fashion a remedy. Its task is to interpret and enforce the state’s laws and strike down those that are unconstitutional.”

 

The newest Cavalcade of Risk is up!  The roundup of insurance and risk management posts is hosted this time by Rebecca Shafer.  Our old friend Hank Stern contributes with bad news on the ACA computer security front: My Bleeding (404Care.gov) Heart

 

TaxProf,  The IRS Scandal, Day 357.  For a “phony scandal,” it’s awfully persistent.

 

The soft bigotry of low expectations.  IRS Commish Reminds Senator That Hill Staffers Have Worse Tax Compliance Than IRS Employees (Going Concern)

 

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Tax Roundup: April 30, 2014: Force of nature edition. And: Extenders move in U.S. House.

Wednesday, April 30th, 2014 by Joe Kristan

Iowa 1040s are due today!  If you are 90% paid in, they extend automatically with no filing.  If you need more time and need to pay in something, use IA 1040-V.

 

20130113-3House votes to make permanent six “expiring” provisions.  The House Ways and Means Committee voted to permanently extend six of the perpetually-expiring tax breaks that Congress renews every year or two.  They include:

  • A simplified version of the research credit
  • The five-year built-in gain tax recognition period for S corporations
  • The $500,000 Section 179 deduction limit
  • A provision reducing the net basis reduction for S corporation donations of appreciated property to the basis of the property.

The committee also voted for two international extenders.

The votes were mostly along party lines, which means they are unlikely to be passed in this form by the Democratic-controlled Senate. The Senate Finance Committee has already approved its own temporary extender package, and my guess is the final extenders package will look like the Finance Committee bill.

Tax Analysts reports ($link) that the committee isn’t done with extenders, but it isn’t clear when it will look at Bonus Depreciation.

The “no” votes for the House package objected to the lack of offsets to the revenue “lost” by the package.   I’m less upset.  While I oppose the research credit on principle, these provisions are permanent anyway; the whole “extender” process is a sham, conducted only to pretend that the tax breaks aren’t permanent so they “cost” less under Congressional accounting rules.  It’s the sort of thing that would be a felony in the private sector, but just another day for our leaders.  At least the House bill drops the pretense that these things won’t get passed every time they expire.

 

Additional coverage available at Accounting Today.

Related:

Tax Justice Blog, Rep. Dave Camp’s Latest Tax Gambit Is “Fiscally Irresponsible and Fundamentally Hypocritical”

Clint Stretch, Dreams of Tax Reform (Tax Analysts Blog)

 

 

20130117-1No gas tax boost this year.  Sioux City Journal reports that a last-gasp attempt to boost Iowa gasoline taxes died last night as the General Assembly continues its pre-adjournment frenzy.

 

David Brunori, Sad Pragmatism and Tax Incentives (Tax Analysts Blog).  “If tax incentives are an unavoidable reality, we should make them as transparent and accountable as possible.”  True, but that doesn’t excuse the politicians who take your money and give it to their special friends.

 

The Iowa State University Center for Agricultural Law and Taxation has released its 2014 summer seminar schedule.  It includes a slate of webinars on topics from Ethics to ACA mandates.  There will also be two big out-of-town events, in West Baden Springs, Indiana, and West Yellowstone, Montana.  I’m not able to participate this year, but they are a hoot and a great learning experience.

 

TaxGrrl, Widow Loses House Over $6.30 Tax Bill.  “A Pennsylvania woman has lost her home for little more than the cost of a Starbucks Frappuccino.”  The law in all its majesty.

Kay Bell, File IRS Form 1040X to correct old tax mistakes

Peter Reilly, Graduation Contingency Kills Alimony Deduction.  It’s very easy to screw up an alimony deduction with bells and whistles, as Peter explains.

 

20120531-1Jason Dinesen, Preparer Regulation and Judging Preparers Based on Size of Refund.  “Anyone who’s worked in this business has experienced the irate client who thinks the preparer screwed up because their refund was less than their friend/co-worker/hair dresser, etc.”

 

TaxProf, The IRS Scandal, Day 356

Jack Townsend, U.S. Congressman Indicted for Tax Related Crime

Joseph Thorndike, Airlines Say Ticket Taxes Would Be More Visible if They Were Better Hidden (Tax Analysts Blog)

Alan Cole, What Gift Cards Can Teach Us About Tax Policy (Tax Policy Blog)

Renu Zaretsky, Funding Tax Breaks, the IRS, and Public Pensions, Safety, and Schools.  The TaxVox headline roundup.

 

News from the Profession.  EY Is Tackling the Important Issue of Dudes’ Need for Flexibility (Going Concern)

 

Clear error is a standard used by appellate courts to review some lower court decisions.  A Tax Court case decided by Judge Paris dealing with horse losses yesterday involved purported destruction of records by an old girlfriend.  Here’s where the clear error comes in:

The wrath of a former girlfriend may be a formidable force, but it is not analogous to a hurricane-like natural disaster, and it does not constitute a reasonable cause outside petitioner’s control.

I’ve met Judge Paris, and I strongly suspect she’s never dealt with a bitter former girlfriend. Anyone who has would never have written such a thing.  But as she pointed out that the petitioner provided no evidence that such destruction occurred, so you oughta know that the case probably still is on solid ground.

 

Cite: Roberts, T.C. Memo 2014-74.  Additional coverage from Paul Neiffer, Partial Taxpayer Victory on Horse Farm Case

 

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Tax Roundup, 4/29/14: Funding what we do anyway edition. And: the real IRS crisis.

Tuesday, April 29th, 2014 by Joe Kristan

Remember, Iowa 1040s are due tomorrow!  They extend automatically, with no need to file an extension, to October 30 if you have at least 90% of your 2013 tax paid in.  If you need to pay in some more, use Iowa 1040-V.

 

Via Wikipedia

Via Wikipedia

O. Kay Henderson reports on a New state tax break proposed for Iowa parents who adopt:

The legislature has voted to establish a new tax credit for Iowa parents who adopt a child. If the governor signs the bill into law, Iowans could claim a credit of up to $2500 per child for adoption-related expenses.

The bill would allow the credit for expenses like legal fees and the medical bills for the birth mother.

So the legislature is boldly addressing the lack of available parents wanting to adopt children by subsidizing the process.  Except there is no lack of willing prospective adoptive parents.  In fact, the high cost of adoptions is largely driven by the lack of U.S. babies available, forcing parents wanting to adopt to pursue expensive overseas adoptions.

Adoptive parents do a wonderful thing, taking a stranger’s child into their house as their own.  But all good things don’t necessarily need their own tax break.  This break pays people to do what they are already doing.  If the tax law needs to encourage something, is this the most important thing to do?  Should it instead encourage something people wouldn’t do otherwise?  Should people choose what to do without tax law involvement?  Is it really worth making the Department of Revenue an overseer of the adoption process?  Nobody cares, apparently, as HF 2468 flew through the Iowa Senate 48-0, and the Iowa House, 95-1.  Governor Branstad will come out against farmers before he vetoes this one.

 

I’m sure they are.  Iowa Renewable Fuels Group Pleased With Biofuels Bill Approval. More special favors for special friends.

 

A scene from the heydey of Iowa energy independence.

A scene from the heydey of Iowa energy independence.

 

Kay Bell, Maryland pays $11.5 million to keep House of Cards.  Some people never learn.

 

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

Janet NovackThere’s A Crisis At The IRS And It’s Not What You Think:

The IRS is, however, an insular, often tone deaf and sometimes bumbling bureaucracy which is being starved of the resources it needs to do its job.  Since 2010, its Congressional appropriations have fallen 7% —-and that’s in nominal dollars, before any adjustment for inflation. During the same period, its appropriations funded workforce has shrunk by 10%, with enforcement staff down 15%, according to numbers Congress’ Government Accountability Office released last week. Meanwhile, the tax agency’s workload has increased with the explosion of identity theft tax refund fraud; a 4% growth in returns filed; and new laws to administer, including the Affordable Care Act  (a.k.a. Obamacare).

That is precisely true.  It’s also mostly the agency’s own fault.   The agency been shown to have used its powers against political opponents of the administration.  It refuses to back off of proposed regulations that would make its political role permanent.  Until it swears off that approach, it can only expect short funding.  The House GOP would be fools to fund an agency dedicated to the other party.  Untill Commissioner Koskinen can rise above pro-administration partisanship and pull the proposed regulations, the agency will continue to be shorted.

 

Annals of Public Service.  Rep. Grimm charged with tax fraud, says he won’t quit (USA Today):

Republican Rep. Michael Grimm was indicted Monday on federal charges of tax evasion and perjury for allegedly hiding more than $1 million in revenue from a New York City restaurant he owned where, prosecutors said, he also hired undocumented immigrants.

Grimm, a former FBI agent who has been under federal investigation regarding campaign contributions, said he is the victim of a “political witch hunt” and said he would not resign his seat.

While you can’t rule out a political explanation, the man is a politician, so the charges are at least plausible.  If it is an unsupported political prosecution, that will become apparent quickly.

Even if the charges are supported, that doesn’t rule out political bias.  After all, Democrat Charlie Rangel was never indicted, in spite of failing to pay his taxes for years.  That’s why arguments that the Tea Party persecution was OK, because some Tea Party groups didn’t qualify for exempt status, are unconvincing.  When a law is enforced only against opponents,  it is a gross injustice, even if the selective enforcement catches some actual violators.

 

IMG_1944Peter Reilly, Tax Court Denies Amway Losses – Again.  Peter ponders the Amway couple I discussed last week.  Peter has actually attended an Amway presentation, and he explains how the program works – or doesn’t.

Tony Nitti, Tax Geek Tuesday: Tax Planning For Mergers And Acquisitions, Part II.  This post discusses the tax-free kind.

TaxGrrrl, Let’s Go Places: Toyota Workers Could Save Big Tax Dollars With Move.  Food for thought for those who think state taxes are irrelevant.

 

TaxProf, The IRS Scandal, Day 355

Tyler Cowen, Accounting for U.S. Earnings and Wealth Inequality.  “So much of the current Piketty debate is simply forgetting that…science exists and has already offered a wide range of insights on these topics, as well as having rendered some of the more extreme claims unlikely.”

Richard Borean, Does a Flat Income Tax Create Income Inequality? (Tax Policy Blog).  Short answer: no.

20140429-1

 

Jeremy ScottThe Most Expensive Extenders (Tax Analysts Blog).  “Temporary tax policy is generally bad, but temporary policy that is designed to encourage long-term investment decisions is even worse. ”

 

It’s Tuesday!  That makes it Robert D. Flach Buzzday!

 

Russ Fox, It’s Probably Not Good for Your Case When the Court Considers Sanctioning Your Attorney.  When  your lawyer angers the judge, he may not be helping.

News from the Profession.  This Off-Kilter Accounting Firm Just Launched a New Website Begging to Be Judged (Going Concern)

 

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Tax Roundup, 4/28/14: No connection found for Iowa broadband credit. And: it can take a long time to recover from tax season.

Monday, April 28th, 2014 by Joe Kristan


20120906-1
Truly we live in the age of wonders.  
A new set of economic development tax credits made it to the floor of the Iowa House on a Friday — and failed.  It’s a wonder that they actually showed up on a Friday — and to reject corporate welfare, to boot.

Before we get excited, it would be wrong to believe that the Iowa General Assembly has suddenly come to its senses about tax incentives.  It appears that many of the “no” votes on HF 2472 were from people who felt it wasn’t a big enough giveaway, reports the Des Moines Register:

Democratic leader Mark Smith, D-Marshalltown, said his members voted against the bill because they felt it didn’t go far enough in incentivizing and stimulating the expansion of high-speed Internet service.

Governer Branstad was unhappy:

“Rather than coming together to pass common sense legislation to increase broadband access in rural Iowa, Iowa House Democrats have turned their backs on rural Iowans and those who are under served,” Branstad said. “Today, the Iowa House Democrats played the worst of political cards; the Washington, D.C., hand of ignoring what is in the best interest of the taxpayers for political purposes.”

But nine Republicans also voted no in the 44-51 vote against the bill: Heartsill (Marion), Mawell (Poweshiek), Pettengill (Benson), Salmon (Black Hawk), Shaw (Pocahontas), Sheetas (Appanoose), Upmeyer (Cerro Gordo), Vander Linden (Mahaska), and Watts (Dallas).  If four of them had voted with the Governor, the bill would have passed.   The Des Moines Register didn’t bother to ask the Republicans why they voted no, but O. Kay Henderson did:

Representative Guy Vander Linden of Oskaloosa was among the nine Republicans who voted no.

“The ‘Connect Iowa’ bill, in my mind, doesn’t connect any Iowan, let alone every Iowan,” Vander Linden said.

Vander Linden faulted the bill for the way it handed out tax breaks to companies.

“We don’t say they need to meet any requirements in terms of our capacity, speed — anything. All we say is: “If you will put broadband infrastructure in place in any unserved or underserved area…we’ll give you all these benefits,” Vander Linden said. “That, to me, sounds like a blank check that I’m not willing to sign up to.”

Lack of standards and accountability hasn’t stopped tax credit giveaways before.  And they actually worked on a Friday, too. Yes, it truly is an age of wonders.

 

20140307-1Jason Dinesen, I Get Very Sad When a Client Gets Involved in Multi-Level Marketing.:

The reason I get sad nothing to do with taxes or fears that the client will be over-aggressive with deductions.

The reason I get sad is: so few of them actually make money.

 

Russ Fox, Your Dependents do have to be Your Dependents…

Kay Bell, Storm season 2014 arrives with a vengeance. Disaster victims should seek tax recovery help after the skies clear

TaxGrrrl, Now That Tax Day Has Passed, How Long Should You Keep Those Tax & Financial Records? 

Paul Neiffer, Are You Still Running Windows XP?! I finally upgraded to Windows 8.1 at home this weekend — a virtual machine on an iMac running Parallels Desktop.  It was the smoothest Windows installation I’ve ever done — it actually went without a hitch the first time through.

 

 

TaxProf, The IRS Scandal, Day 354

Renu Zaretsky, Tax Shelters, Tax Fights, and One Way to Reform a Zombie.  The TaxVox headline roundup includes an update on House taxwriter plans to work on an “extenders” bill this week.

Tax Justice Blog, Lawmakers Will Move Tuesday to Approve Hundreds of Billions in Business Tax Breaks — and Still No Help for the Unemployed.

William McBride, Corporate Exits Accelerating, Taking Jobs with Them (Tax Policy Bl0g).  Rates matter.

 

IMG_2493U.S. residents must pay U.S. tax, regardless of celestial citizenship.  A Minnesota couple hasn’t gotten the message, according to PioneerPress.com:

Living in the “Kingdom of Heaven” will not get you out of paying taxes, according to federal prosecutors.

On Tuesday, Tami Mae May, 55, was indicted in U.S. District Court in Minneapolis on 15 counts of filing fraudulent tax returns and a single count of obstruction of due administration of internal revenue laws, according to the U.S. attorney’s office.

Through 2013, she claimed “zero income,” signed under altered certifications, said both she and her husband were not citizens of the United States but were instead permanent residents of the “Kingdom of Heaven,” and reported false withholdings in an attempt to claim “hundreds of thousands of dollars in fraudulent … refunds,” the U.S. attorney’s office said. 

I need to research where the Bible says you can recover cash from the IRS as a result of a divine passport.

 

20140330-1Practitioners everywhere are putting their lives together after another tax season.  Yes, it’s rough, but it’s unlikely you will still be sorting out this tax season two years from now, like an Iowa woman who is just getting her 2012 tax season put to bed.

Here’s what this North Liberty tax practitioner faced in 2012:

The co-owner of a local tax service has been accused of using more than $22,000 from the business’s savings account to cover her credit card bills and her husband was arrested for allegedly causing a drunken disturbance at a local elementary school.

According to an Iowa City police criminal complaint, an investigator met with a co-owner of C & M Tax Service. The other co-owner is 31-year-old Melissa M. Frost of North Liberty.

But it was worse than that:

Police said Frost’s husband, 33-year-old Cory A. Frost was also arrested on Friday. Cory Frost went to North Bend Elementary in North Liberty at 2:45 p.m. to confront an employee there concerning a “situation with his wife,” according to North Liberty police Lt. Diane Venega. It is unclear if that situation is related to Melissa Frost’s arrest.

[…]

When police found Frost, he smelled of alcohol and appeared to be intoxicated. Police said Frost had a blood-alcohol content of .204 percent. He was previously convicted of public intoxication.

KCRG provides an update:

A North Liberty woman accused of stealing money from her own business entered an Alford plea as part of a plea deal with prosecutors.

Melissa Frost, 34, entered the pleas on two separate counts of tampering with records last week, according to online court records. Under the Alford Plea, Frost admits no guilt but acknowledges there is likely enough evidence to convict her.

As part of the deal, Frost received a sentence of probation and deferred judgement, which means she could have the conviction expunged from her record if she fulfills the terms of her probation.

So however bad your tax season was, this is a reminder that somebody, somewhere, probably had it worse.

 

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Tax Roundup, 4/8/14: So what do I do with the K-1? And: they also serve who go away!

Tuesday, April 8th, 2014 by Joe Kristan

So the K-1 finally showed up from my partnership or S corporation investment.  Now what?

Remember that the K-1 represents your share of the income and expenses of the partnership/S corporation/trust (henceforth “thing”) that issued it.  Different pieces of income and expense are treated differently on your tax return, and the K-1 tells you where your pieces go.  Sort of.  Before you get started plugging in your numbers, you should answer some questions for yourself.

Do I “materially participate” in this thing? Your level of participation determines the forms you start with in preparing your returns, whether you can deduct losses, and whether your income from the thing is is subject to the Obamacare 3.8% Net Investment Income Tax.  If you spent more than 500 hours working in the thing, that usually means you materially participate; a more complete discussion of material participation is found here.

– Did the thing lose money?  If it lost money, then you have to clear three hurdles to deduct the losses:

1. You have to have basis.  This starts with your investment in the thing.  If you loaned money directly to the thing, you will get basis for the loan.  If you have a partnership, you will get basis for your share of the partnership debt, shown in part L of your K-1.  S corporation shareholders don’t get basis for their share of the corporation’s debt, even if it is guaranteed by hte shareholder.  Your basis is increased for your share of the thing’s income, and it is reduced for losses and distributions.  If you have no basis, you can’t take losses.

2. Your basis has to be “at-risk.”  This normally means that you are out-of-pocket for the investment.  If your basis comes from borrowed funds, you have to be personally on the hook for the debt — but if you borrowed from somebody with an interest in your thing, you might not be “at-risk” even if you will have to pay up if thing defaults.

If your basis comes from a share of the partnership debt, you are normally considered “at-risk” for debt shown on the “Recourse” and “Qualified Nonrecourse financing” lines on part K of your partnership K-1.  Your at-risk amount is computed on Form 6198,

3. You have to materially participate (see above), or have “passive” income from other activities.  If you don’t materially participate, you need to go to Form 8582 to figure how much, if any, of your loss is deductible this year.

 Got that?  Tomorrow we’ll look at what you have to do after you answer these questions.  Come back every day through April 15 for more !

 

Senator Hubert Houser

Senator Hubert Houser

Legislator of the Century.  Yes, the century is young, but it will be hard to beat the accomplishment of Iowa state senator Hubert Houser.  He went home.  From The Des Moines Register:

At issue is the fact that Houser, a Republican from Carson in southwest Iowa, hasn’t resigned. He has simply stopped coming to the Statehouse, saying he isn’t needed as a minority caucus member and doesn’t have a role in any legislation. He says it’s more important for him to spend time on his family’s farm, where he is expanding the livestock facilities.

Houser was not present in the Senate chamber again on Monday.

Secretary of the Senate Michael Marshall said Monday that Houser is still receiving his annual salary of $25,000.

The coverage implies that Sen. Houser is doing a bad thing.  Considering the dubious accomplishments of the ones that do show up, I can’t agree.  We’d be better off if they all went home.  The legislators should get all of their pay on Day 1 of the session, and they should get docked if it goes past a month.

 

Of course they do.  Iowa House panel OKs $2 million tax break for Knoxville Raceway.  (Des Moines Register)

 

RashiaQueen of IRS tax fraud needs a break.  Rashia Wilson, who famously held up big wads of cash on her Facebook page and taunted the feds to come and get her, is less liquid nowadays, according to a report by tampabay.com:

Busted down to a federal prison in Aliceville, Ala., she earns just $5.25 a month, she declares in newly filed court papers. That’s a problem because Wilson, 28, was ordered to pay a token $25 per calendar quarter toward the $3.1 million in restitution that she owes the IRS for filing false tax returns using stolen identities. She needs money to buy vitamins and hygiene items, too, she says. So she’s asking U.S. District Judge James S. Moody Jr. to suspend restitution payments until after her release date: Jan. 5, 2031. 

Then she’ll really get after it, I’m sure.

 

Peter ReillyNo Money For April 15 1040 Balance Due? Don’t Panic!

Tony Nitti, Where Is Your Tax Home When You Work In A Foreign Land?   

Jason Dinesen, Tax Court Case Involving Radio DJ Strikes Close to Home for Me.  “I used to work in radio. I was the news director at KNOD radio station in Harlan, over in the western part of Iowa.”

I had a brief stint as an unpaid intern for KHAK, a country station in Cedar Rapids, in 1980.  I learned that I have a face for radio and a voice for print.

 

Roger McEowen and Kristine Tidgren, Understand That Easement Agreement Before You Sign It

 

Locust Street, Des Moines

Locust Street, Des Moines

TaxGrrrl, New IRS Commissioner Talks Tax, Scandal and Congress.  She gives him more credit than I do.

Andrew Lundeen, Kyle Pomerleau, Americans Pay More in Taxes than on Food, Clothing, and Housing Combined (Tax Policy Blog)

Renu Zaretsky, Ethics and Fairness, Growth and the Environment, Retirement and Tax Shelters.  The TaxVox headline roundup ponders, among other things, whether we should subsidize wind turbines forever.

Kay Bell, Energy efficient home improvement tax break might be back

TaxProf, The IRS Scandal, Day 334

News you can use. How to Cheat on Your Taxes. (David Cay Johnston, via The Taxprof)

News from the Profession.  According to Research, You Are Fat Because Busy Season (Going Concern)

 

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